BP Australia Ltd. v Federal Commissioner of Taxation

(1964) 110 CLR 387
37 ALJR 365

---

(Judgment by: Windeyer J)

Between: BP Australia Ltd
And: Federal Commissioner of Taxation

Court:

Judges: Taylor J
Dixon CJ
McTiernan J
Kitto J

Windeyer JOwen J

Subject References:
Income Tax

Hearing date: 7-10 March 1961, May 8 1961, March 13,14 1962
Judgment date: 25 February 1964

Melbourne

---

Judgment by:
Windeyer J

The facts out of which this case arises are fully set out and their legal effect discussed by Taylor J. in his judgment (1961) 110 CLR, at pp 388-400 . As I agree in his Honour's conclusion, I shall say very little. (at p416)

The distinction between outgoings on revenue account and expenditure of a capital nature is basic in accounting. It has an economic background. But for various reasons, including the different senses in which each of the words "capital", "income" and "profit" is used by exponents of economic theory, it is I think impossible, or at least unwise, to import fundamental economic doctrine into income tax law or accounting practice. For present purposes, that is the effect of s. 51 of the Income Tax Assessment Act, the distinction must rest upon the decisions of courts. In Van Den Berghs Ltd. v. Clark [1935] AC 431 , at pp 438, 439 Lord Macmillan, after commenting on the absence of statutory definition in the English legislation, said of this topic: "Consequently it is to the decided cases that one must go in search of light. While eachcase is found to turn upon its own facts, and no infallible criterion emerges, nevertheless the decisions are useful as illustrations and as affording indications of the kind of considerations which may relevantly be borne in mind in approaching the problem". I do not suggest that recognizing that each case must be decided in reference to its particular facts means that the question is one of fact alone or that it is to be approached with no greater guidance than is to be got by searching for the nearest analogy among decided cases, or by seeing how far the facts of a case can be made to fit some particular words or sentences extracted from judgments in other cases. Rather I would respectfully adopt what the Chief Justice, then Dixon J., said on this aspect in Hallstroms' Case (1946) 72 CLR 634 , at p 646 . The considerations that are relevant have been discussed in that case, and in other cases in this Court, notably the Sun Newspaper Case (1938) 61 CLR 337 and the Broken Hill Theatres Case (1952) 85 CLR 423 . I need say no more than that I have tried to bear these considerations in mind and to apply them. (at p417)

The character of a questioned item of expenditure must, I think, depend primarily upon its purpose. Regard ought therefore to be had to what it was sought to acquire and to the relation of that to the taxpayer's undertaking or business. These, rather than the form of the transaction or the mechanics of the acquisition, are what appear to me to be deciding factors. In other words, it was what the particular taxpayer got for his money, rather than how he got it, that is important. What he got may be contractual or proprietary rights, or some intangible advantage such as immunity from competition that can more readily be described than classified. Whatever it was, its acquisition must be considered in relation to the circumstances of the particular taxpayer's business. (at p417)

I appreciate that, looking at the present case in this way, two views are open. But, as I see the facts, the payments in question were, as Taylor J. put it, made "to secure for the agreed period a reselling outlet for the appellant's products". That the price of securing the "outlets" was to some extent based on a factor of "gallonage", as it was called, does not, it seems to me, alter the character of the advantages that the appellant obtained or their significance for the future conduct of its business. The appellant met a new situation by setting up a system of tied service stations. The undertakings of the service station proprietors that they would sell and advertise only the appellant's wares and would have their stations painted and decorated accordingly were important to the appellant, and so too were the locations of the stations. Each agreement virtually provided for the appellant a unit in a chain of tied service stations. That the system was inaugurated as a result of a policy forced upon the appellant by a competitor is, no doubt, a circumstance of some significance. But I do not regard it as decisive. By making each arrangement that it did the appellant obtained, for a substantial period, and I would suppose with a prospect of renewal thereafter, something that was to become a part of the structure, organization or framework within which, and by means of which, the appellant carried on its business. (at p418)

I would dismiss the appeal. (at p418)