DOUTCH v FC of T

Judges:
Greenwood J
McKerracher J
Moshinsky J

Court:
Full Federal Court, Perth

MEDIA NEUTRAL CITATION: [2016] FCAFC 166

Judgment date: 2 December 2016

Greenwood, McKerracher and Moshinsky JJ

1. On 17 July 2008, the applicant ( Mr Doutch ) sold certain mining tenements to Golden West Resources Pty Ltd ( GWR ). Mr Doutch received $5,000,000 cash and 5,000,000 ordinary shares in GWR as consideration for the tenements. The value of the sale was $11,680,000 (GST exclusive).

2. In his tax return for the year of income ended 30 June 2009, Mr Doutch declared the capital gain he made on the sale of the tenements. He claimed in his tax return a 50% capital gains tax ( CGT ) discount under the applicable provisions of the Income Tax Assessment Act 1997 (Cth) ( ITAA 1997 ). The capital gain, after application of that discount, was $5,443,900. A notice of assessment for that year was issued on 14 September 2010, showing Mr Doutch's taxable income to be $5,612,632 ( 2009 Assessment ).

3. Some years later, on 19 December 2013, Mr Doutch objected to the 2009 Assessment on the basis that the small business 50% reduction in Subdivision 152-C of the ITAA 1997 should also apply to the capital gain. If applicable, this would reduce the capital gain by an amount of $2,877,364. In order to establish that the concession was available, Mr Doutch contended in his objection, and subsequent correspondence in relation to the objection, that the "aggregated turnover" (a defined expression) of an associated entity, Denarda Holdings Pty Ltd ( Denarda ), which carried out exploration activities on the land the subject of the tenements, for the previous year (that is, the year ended 30 June 2008), was less than $2,000,000.

4. The Commissioner disallowed the objection. In the course of his decision, he concluded that the aggregated turnover of Denarda for the year ended 30 June 2008 was more than $2,000,000.

5. Mr Doutch applied to the Administrative Appeals Tribunal (the Tribunal ) for review of the Commissioner's decision on the objection. The principal issue before the Tribunal was whether the aggregated turnover of Denarda for the year ended 30 June 2008 was less than $2,000,000. This turned on whether receipts totalling $55,106 in respect of fuel disbursements formed part of Denarda's "annual turnover" (a defined expression) for the year ended 30 June 2008. The expression "annual turnover" was relevantly defined in s 328-120(1) as meaning:

An entity's annual turnover for an income year is the total *ordinary income that the entity * derives in the income year in the ordinary course of carrying on a *business.

The Tribunal concluded that the receipts in respect of fuel disbursements were ordinary income that Denarda derived in the year ended 30 June 2008 in the ordinary course of carrying on a business. As a consequence, the Tribunal affirmed the decision under review.

6. Mr Doutch has appealed to this Court on a question of law pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) ( AAT Act ). As one of the members of the Tribunal who decided the application was a judge, the jurisdiction of this Court is to be exercised by a Full Court: AAT Act, s 44(3)(c).

7. Mr Doutch contends, in summary, that the Tribunal erred in adopting a construction of the phrase "in the ordinary course of carrying on a business" from the explanatory memorandum for the Tax Laws Amendment (Small Business) Bill 2007 (Cth); the Tribunal should have adopted the meaning given to the phrase in case law, in particular
Commissioner of Taxation v The Myer Emporium Limited (1987) 163 CLR 199 ( Myer Emporium ) at 209-201; and the Tribunal should have ascertained whether the receipts were derived "in the ordinary course of carrying on a business" by reference to whether

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they were "extraordinary" judged by reference to the ordinary course of the taxpayer's business. Mr Doutch also contends that a particular factual finding made by the Tribunal was not open on the evidence.

8. In our view, Mr Doutch has not established any error by the Tribunal. Our reasons, in summary, are as follows.

9. It follows that the appeal is to be dismissed.

Legislation

10. The issues raised by the appeal concern Division 152 (small business relief) and Division 328 (small business entities) as applicable for the year of income ended 30 June 2009.

11. As noted in the objection decision, s 152-10(1) was amended by the Tax Laws Amendment (2009 Measures No 2) Act 2009 (Cth). These changes were effective 23 June 2009 (the date of Royal Assent) but applied retrospectively to the 2007-2008 income year and later income years. In setting out the relevant provisions below, we set out the provisions as applicable for the year ended 30 June 2009 including these amendments.

12. Division 152 comprised a number of tax concessions relating to CGT designed to "help small business" (s 152-1). The basic conditions for relief were set out in Subdivision 152-A. Of the four available small business concessions, only the 50% reduction (in Subdivision 152-C) is relevant for present purposes.

13. Section 152-10 (located in Subdivision 152-A) relevantly provided as follows:

14. Sections 152-35 and 152-40 dealt with the active asset test and were relevantly in the following terms:

15. As noted above, Subdivision 152-C related to the small business 50% reduction. Section 152-205, located in that subdivision, provided:

152-205 You get the small business 50% reduction

The amount of a *capital gain remaining after applying step 3 of the method statement in subsection 102-5(1) is reduced by 50%, if the basic conditions in Subdivision 152-A are satisfied for the gain.

Example: For an individual (other than one who opts to claim indexation instead of the discount), the discount percentage that applies under step 3 of the method statement is 50%. Therefore, the combined effect of the discount percentage and this section would be to reduce the original capital gain by a total of 75%.
  For an individual who opts to claim indexation, or a company, there is no discount percentage, so the individual or company would simply get the 50% reduction under this section.

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16. Division 328 dealt with small business entities. Subdivision 328-C explained the meaning of the terms "small business entity", "annual turnover" and "aggregated turnover". Section 328-110 relevantly provided:

17. The term "aggregated turnover" was defined in s 328-115 as follows:

18. The term "annual turnover" was relevantly defined in s 328-120 as set out in [5] above.

19. Section 328-125 dealt with the meaning of "connected with" an entity and s 328-130 dealt with the meaning of "affiliate". It is not necessary to set out these provisions for the purposes of the issues on appeal.

Background facts

20. The following summary of the background facts is based on the reasons of the Tribunal (the Reasons ).

21. On 6 November 1997, Mr Doutch's sister transferred WA gold mining leases to him for no consideration.

22.

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In December 2001, the WA gold mining leases expired and were reissued to Mr Doutch (the Tenements ).

23. On 17 July 2008, Mr Doutch entered into a Sale and Purchase Agreement with GWR (referred to as "Mining Co" in the Reasons) to sell the Tenements for a consideration of $5,000,000 in cash plus 5,000,000 ordinary shares in GWR, valued at their closing price on the Australian Stock Exchange on that day. This disposal resulted in a capital gain.

24. During the period 1 July 2007 to 30 June 2009, Mr Doutch was one of two directors of Denarda (referred to as "Drilling Co" in the Reasons). Denarda's issued capital consisted at the material time of two ordinary shares, one B class share and one C class share. At all material times, Mr Doutch beneficially owned one ordinary share and one B class share in the company.

25. Denarda is an oil and gas drilling business based in Western Australia and carrying on business in that State.

26. Denarda owns a drilling rig which it uses in the conduct of its business. The drilling rig usually operates continually, namely seven days a week, weather dependent.

27. The drilling rig moves from drilling site to drilling site on a float (a low loader truck). This is because when the drilling rods are on board the rig, the drilling rig exceeds the permissible weight for use on public roads.

28. Once on site the drilling rig will be tasked with drilling holes at the direction of the mining or exploration site owner. This will involve a geologist employed by the mining or exploration site owner directing the drilling rig where to place itself prior to commencing drilling. Generally a "pad" will have been prepared. A "pad" is a flat area of around 15 to 20 metres by 15 to 20 metres where the drill rig will operate. The depth of the holes drilled and the angle drilled are at the direction of the mining or exploration site owner's geologist.

29. The drilling rig operates mainly on mining sites and each job can last for up to six months.

30. During the course of carrying out the drilling operations, the drilling rig uses diesel fuel. It also uses other products which are consumed in the course of drilling operations. These include drill bits and hammers.

31. The drilling rig takes 1,000 litres of fuel (stored in 2 × 500 litre tanks). The drilling rig uses approximately 1,000 of litres of fuel a day. On the basis that the drilling rig was operating to capacity, it can be inferred that the drilling rig used in excess of 300,000 litres of fuel in the year ended 30 June 2008.

32. Before undertaking a drilling operation for a client, Denarda enters into a contract with the company which has engaged Denarda to carry out the drilling operations. The contract usually contains terms which deal with the charging of consumables and fuel.

33. During the four years ended 30 June 2006 to 30 June 2009, Denarda performed the majority of its drilling services for (and derived the vast majority of its income from) GWR, and less frequently performed drilling services for (and derived income from) Magellan, on mine sites in or near West Wiluna. Magellan's mine site was approximately 20 kilometres away from GWR's West Wiluna site. The provision of drilling services to GWR accounted for 65% of Denarda's revenue during the year ended 30 June 2008 and 79% during the years ended 30 June 2006 to 30 June 2009.

34. Annexure A to the "Wiluna West Project Drilling Contract" between GWR and Denarda, dated 5 June 2009 ( GWR Contract ), titled "Tender for RC Drilling", provides (at clause 1.3(C)) that the "Contractor" (i.e. Denarda) would provide "all fuel required" and if fuel is supplied by GWR it would be "noted as part of the overall drilling cost".

35. However, that term did not represent what actually occurred in relation to the fuel charges in respect of the drilling services provided by Denarda to GWR and Magellan. In each of those cases during the period 2006 to 2009, GWR and Magellan provided the fuel used by Denarda on site and Denarda did not invoice each of those companies for the cost of the fuel used by the drilling rig in carrying out the drilling functions.

36. The unchallenged evidence of Mr Doutch and the Exploration Director of GWR was that the GWR Contract (which provided that Denarda was to provide the fuel and would charge the client for the fuel consumed by the

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drilling rig) most likely arose as a result of a temporary CEO seeking to change practices, almost a year after the year ended 30 June 2008, but that the changes were never implemented.

37. In about October 2007, the drill was located near Wiluna. Mr Doutch was asked by Mr DC (adopting the anonymised reference used in the Reasons), with whom he had a good relationship, to provide drilling services at an exploration site of Pioneer Nickel Limited ( Nickel Limited ) near Ravensthorpe. Mr Doutch agreed and the rig was relocated from Wiluna to near Ravensthorpe.

38. Denarda sent Nickel Limited a letter dated 30 October 2007, attaching a document titled "Price Schedule at 30th October 2007" (the copy before the Tribunal was unexecuted) which stated, under the heading "Client Responsibility":

The client [i.e. Nickel Limited] will be responsible for provision of fuel for all drilling associated equipment and vehicles.

39. Nickel Limited did not, however, provide fuel for the operation of the rig during the time that it was at its exploration site. The fuel needed to operate the rig was purchased by employees of Denarda from a commercial outlet in Ravensthorpe and taken to the site where it was then used by the drilling rig in its operations. The fuel charges were then included in invoices which were furnished by Denarda to Nickel Limited (see further below).

40. While the drilling rig was operating at Nickel Limited's site, Mr Doutch was asked by Tectonic Resources NL ( Resources NL ) if Denarda could also carry out drilling services at its site. Mr Doutch agreed.

41. Denarda sent a letter to Resources NL, dated 14 November 2007, which attached a document titled "Price Schedule at 14th November 2007" (the copy before the Tribunal was executed) which stated, under the heading "Client Responsibility":

The client [i.e. Resources NL] will be responsible for [the] full cost of all drilling associated equipment and vehicles.

42. However, as in the case of Nickel Limited, the fuel that was used by the drilling rig in performing the contract for Resources NL was purchased by Denarda from a commercial outlet in Ravensthorpe and the fuel charges incurred by Denarda were then included in the total amount invoiced to Resources NL.

43. At [56] of the Reasons, the Tribunal made the following finding, which is challenged on appeal:

Despite the fact that the terms of the Price Schedule provided otherwise, [Mr Doutch] knew in advance of the supply of the drilling services under [the] contracts with Nickel Limited and Resources NL that neither would be supplying the fuel for the provision of the drilling services.

44. An amount comprising a fuel disbursement was included in each of five separate invoices that Denarda issued to Nickel Limited and Resources NL in the year ended 30 June 2008. Each invoice shows that Denarda invoiced Nickel Limited and Resources NL "at cost" for diesel fuel (totalling $55,106) purchased by it in the year ended 30 June 2008 and consumed by the drilling rig whilst Denarda was performing its contracted drilling services for Nickel Limited and Resources NL ( Fuel Disbursements ). As well as including the charges for fuel, the invoices also included charges for various other expenses incurred by Denarda necessary to perform its contracted drilling services for Nickel Limited and Resources NL, including hammers, hammer oil, drill foam, drill bits, truck tyres and so on. The five invoices together charged a total of $476,129 (the Invoices) .

45. Details of the Invoices, which included the Fuel Disbursements, are set out in the table below.

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Date of Invoice Client Period work done Total amount of invoice (GST exclusive) Fuel Disbursements (included in amounts in fourth column)
29/01/08 Resources NL 10 to 22 Jan 08 $104,978 $8,919
19/12/07 Resources NL 10 to 17 Dec 07 $75,358 $10,858
10/12/07 Resources NL 3 to 9 Dec 07 $77,377 $8,001
3/12/07 Nickel Limited 17 Nov to 1 Dec 07 $103,962 $11,550
20/11/07 Nickel Limited 8 to 19 Nov 07 $114,456 $15,779
      $476,129 $55,106

46. The Office Manager of Denarda, who was responsible for issuing invoices, remembered the Invoices because it was unusual for Denarda to charge for fuel. The Office Manager said, however, that she took no action as a consequence of this and issued the Invoices in the usual way.

47. In the experience of the Exploration Director of GWR it was usual for the clients of Denarda to supply the fuel consumed by the drilling rig in providing drilling services under a contract. However, he accepted there were occasions when the client did not provide the fuel and when the fuel was provided by Denarda and the client was invoiced for the fuel.

48. In the experience of the Exploration Director it was "industry practice" for mining companies to supply fuel for contractors (including drillers), especially for large drilling contractors. He accepted, however, that there would be cases where the mining company did not supply fuel.

49. The provision of drilling services to Nickel Limited and Resources NL was a not insignificant part of Denarda's overall business in the year ended 30 June 2008. At a total of $476,129, the Invoices account for approximately 23% of the amount of the claimed "annual turnover" for that year of $2,032,829 (including the Fuel Disbursements). The time period covered by the Invoices, being 54 working days, also constitutes a not insignificant portion of the relevant year.

50. Denarda's income tax return for the year ended 30 June 2008 disclosed total gross income of $2,545,010, comprising:

Drilling Receipts $2,466,753
Lease/Hire of Motor Vehicle Income $72,978
Miscellaneous Income $3,963
Interest $1,316
Denarda's Gross Income $2,545,010

51. However, Mr Doutch contended prior to the hearing in the Tribunal that the "annual turnover" (as defined in s 328-120 of the ITAA 1997) of Denarda for the year ended 30 June 2008 was $1,974,323, calculated as follows:

Taxable income returned   $2,545,010
Less:    

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Lease/Hire of Motor Vehicle $72,978  
Miscellaneous Income $3,963  
Interest $1,316 $78,257
Drilling Receipts   $2,466,753
Less:    
Advance Payments $205,000  
Loan from N Metals $50,000 $255,000
    $2,211,753
Less:    
Amounts invoiced for reimbursement of "irregular disbursements" incurred in providing access to the Tenements for purposes of inspection $135,714  
Fuel disbursements charged $55,106  
GWR drilling charges accrued in 2007 financial year $46,610 $237,430
Adjusted Annual Turnover   $1,974,323

52. There were concessions made prior to the hearing before the Tribunal so that Mr Doutch's position at the time of the Tribunal hearing was that Denarda's "annual turnover" for the year ended 30 June 2008 for the purposes of s 328-120 of the ITAA 1997 was $1,977,723, calculated as set out in the following table:

Adjusted Annual Turnover per above table $1,974,323
Add: Amount conceded by applicant re loan from [N] Metals $50,000
  $2,024,323
Less: Irregular disbursements paid to Mr BM on behalf of GWR $46,600
Further Adjusted Annual Turnover $1,977,723

The tax return, objection and objection decision

53. On 6 September 2010, Mr Doutch lodged his income tax return for the year ended 30 June 2009.

54. The 2009 tax return disclosed a taxable income of $5,612,632, calculated as follows:

Salary and Wages   $152,300
Interest   $33,575
Add: Capital Gain $11,680,000  
Less: CGT cost base (sale costs) $170,544  
Gross capital gain $11,509,456  
Less: Capital losses $621,656  
  $10,887,800  

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Less: 50% discount $5,443,900 $5,443,900
    $5,629,775
Less: Cost of managing tax affairs   $17,143
Mr Doutch's Taxable Income   $5,612,632

55. On 14 September 2010, Mr Doutch was issued with the 2009 Assessment, by which Mr Doutch's taxable income was assessed in accordance with his 2009 tax return.

56. On 19 December 2013, Mr Doutch objected to the 2009 Assessment on the basis that the 50% reduction in Subdivision 152-C of the ITAA 1997 should apply to the capital gain amount of $5,443,900 (as disclosed in the 2009 tax return), reducing that capital gain amount by $2,877,364.

57. In a memorandum dated 19 December 2013 in support of the objection, MKT Taxation Advisers, on behalf of Mr Doutch, contended:

58. In a further memorandum, dated 4 April 2014, MKT Taxation Advisers contended as follows:

59. On 30 June 2014, the Commissioner disallowed the objection in full as he was not satisfied that Denarda's "annual

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turnover" for the year ended 30 June 2008, for the purposes of s 328-120 of the ITAA 97, was less than $2 million ( Objection Decision) . We note the following in relation to the Objection Decision:

The Tribunal's decision

60. On 29 August 2014, Mr Doutch applied to the Tribunal for a review of the Objection Decision.

61. It was accepted before the Tribunal that Denarda is, and at all relevant times was, a company "connected with" Mr Doutch for the purposes of s 328-125 of the ITAA 1997. It was also accepted that in assessing the sum of the "relevant annual turnovers" for the purpose of determining the "aggregated turnover" for the year ended 30 June 2008 regard was to be had only to the "annual turnover" of Denarda.

62. It followed, therefore, that the question to be determined by the Tribunal depended on whether the "annual turnover" of Denarda for the previous year, namely, the year ended 30 June 2008, was less than $2 million.

63. As a result of certain concessions, the only issue was whether, in assessing Denarda's "annual turnover" for the year ended 30 June 2008, Denarda was entitled to deduct the total sum of $55,106 in respect of the monies received for the Fuel Disbursements.

64. Before the Tribunal, there were two bases upon which Mr Doutch contended that he was entitled to deduct the sum of $55,106 which Denarda charged in respect of the fuel it had purchased:

65. The second of these contentions is not pursued on appeal and can be put to one side.

66. The Tribunal considered Mr Doutch's first contention at [68]-[78] of the Reasons. We set out this passage of the Reasons in full:

The appeal on a question of law

67. Mr Doutch's amended notice of appeal contains 10 questions of law and 10 related grounds of appeal. At the hearing of the appeal, counsel for Mr Doutch indicated that he did not press grounds 9 and 10 (which relate to the expression "sales of retail fuel" in s 328-120(3)). In relation to grounds 1 to 3 (which relate to the expression "ordinary income"), at the hearing of the appeal counsel for Mr Doutch said that the way the Tribunal "answered what is in the ordinary course of business by including what is incidental to the ordinary course of business, probably gets [the Tribunal] to the right answer on 'ordinary income'". He accepted that, subject to the challenge to the finding of fact raised by ground 8, the Tribunal's conclusion as to ordinary income "must stand". He therefore said that it made sense not to press

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grounds 1 to 3. In these circumstances, and in light of our conclusion, below, in relation to ground 8, it is unnecessary to consider grounds 1 to 3.

68. Questions of law numbered 4 to 8 and the associated grounds in the amended notice of appeal are as follows:

The taxpayer's submissions on appeal

69. Mr Doutch's submissions in relation to grounds 4-7 can be summarised as follows:

70. Mr Doutch's submissions in relation to ground 8 (which challenges the Tribunal's finding of fact at [56] of the Reasons, set out in [43] above) can be summarised as follows:

Disposition of the appeal

71. For the following reasons, Mr Doutch has not established any error by the Tribunal.

72. First, the passage from Myer Emporium upon which Mr Doutch relies (see [69](a) above) is concerned with income according to ordinary concepts. Although the High Court referred to a profit or gain made in the ordinary course of carrying on a business, the Court was not construing the phrase "in the ordinary course of carrying on a business"; nor did it provide a definition of that phrase. The point the High Court was making was that a gain made otherwise than in the ordinary course of carrying on a business may constitute income; whether it does or not will depend on the circumstances of the case. The focus of the passage is on what constitutes income, not on what constitutes the ordinary course of carrying on business.

73.

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Mr Doutch in oral submissions referred to a sentence from the judgment of Hill J in
Commissioner of Taxation v Cooling (1990) 22 FCR 42. His Honour said at 51:

While the fact that a transaction is a normal incident of the business activity will be conclusive of the income character of the profit derived from that business, the converse is not the case and the profit arising from an unusual or indeed extraordinary transaction may be income at least where, as in Commissioner of Taxation (Cth) v Myer Emporium Pty Ltd the transaction was entered into by a taxpayer with the intention or purpose of making the profit.

Again, as with the passage from Myer Emporium set out above (to which Hill J made reference), his Honour was discussing the concept of "income" rather than the meaning of the phrase "in the ordinary course of carrying on a business".

74. Secondly, the Tribunal was correct to hold that the words "in the ordinary course of carrying on a business" in s 328-120(1) of the ITAA 1997 bear their ordinary meaning. While the words have been used in other provisions, and discussed in cases in the context of those provisions, they do not have a technical legal meaning: cf Pearce, DC and Geddes, RS, Statutory Interpretation in Australia (8th ed, 2014), [4.13]-[4.14].

75. Thirdly, the Tribunal referred to the explanatory memorandum to the Bill which became the Tax Laws Amendment (Small Business) Act 2007 (Cth) to confirm the ordinary meaning of the words used in s 328-120(1). The Tribunal did not adopt the words of the explanatory memorandum as providing a definition for the words used in the statute.

76. Fourthly, the meaning given to the expression "ordinary course of business" in the context of bankruptcy legislation is not wholly applicable. In the context of s 95(2)(b) of the Bankruptcy Act 1924 (Cth), in
Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd (in liq) (1948) 76 CLR 463, Rich J said at 476-477:

As was pointed out in
Burns v. McFarlane [(1940) 64 CLR 108, at p 125] the issues in sub-s. 2(b) of s. 95 of the Bankruptcy Act 1924-1933 are "(1) good faith; (2) valuable consideration; and (3) ordinary course of business." This last expression it was said "does not require an investigation of the course pursued in any particular trade or vocation and it does not refer to what is normal or usual in the business of the debtor or that of the creditor." It is an additional requirement and is cumulative upon good faith and valuable consideration. It is, therefore, not so much a question of fairness and absence of symptoms of bankruptcy as of the everyday usual or normal character of the transaction. The provision does not require that the transaction shall be in the course of any particular trade, vocation or business. It speaks of the course of business in general. But it does suppose that according to the ordinary and common flow of transactions in affairs of business there is a course, an ordinary course. It means that the transaction must fall into place as part of the undistinguished common flow of business done, that it should form part of the ordinary course of business as carried on, calling for no remark and arising out of no special or particular situation.

77. But in the context of s 328-120(1), it seems likely that it is the ordinary course of the particular business that is relevant. The provision is concerned with the "annual turnover" of a particular entity, and the reference to "business" is to the business of that entity. Nevertheless, the passage is of assistance in indicating that the expression "ordinary course of business" refers to the ordinary and common flow of transactions of a business.

78. Fifthly, in the present case, it was open to the Tribunal to conclude (as it essentially did conclude at [74] and [75] of the Reasons) that the transactions in question took place in the ordinary course of the business carried on by Denarda. Although it may be accepted that Denarda's customers usually purchased and provided fuel for Denarda's drilling operations, the transactions in question, namely the provision of drilling services by Denarda to Nickel Limited and Resources NL, were part of the ordinary and common flow of transactions of Denarda's business.

79.

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Sixthly, we reject Mr Doutch's contention that income may be both "incidental to" the normal day-to-day activities of a business and also "extraordinary" judged by reference to the ordinary course of the taxpayer's business. In circumstances where the income is incidental to the normal day-to-day activities of a business, it is derived "in the ordinary course of carrying on a business" and is necessarily not "extraordinary" judged by reference to the ordinary course of the business. It may be accepted that, as Mr Doutch submitted, in some circumstances a receipt may be an incident of an extraordinary part of a business (see, eg,
Commissioner of Taxation v Montgomery (1999) 198 CLR 639 at [113]). But in the present case, as the Tribunal found, the relevant receipts were an incident of an ordinary part of the relevant entity's business.

80. Seventhly, we reject Mr Doutch's contention that the Tribunal failed to address whether the relevant income was derived in the course of an extraordinary part of Denarda's business. The Tribunal addressed whether the income was derived in the ordinary course of carrying on the business, and thus by implication addressed whether it was derived in the course of an extraordinary part of the business.

81. Eighthly, in relation to the submission referred to in [69](o) above, there does not appear to be a basis to challenge the Tribunal's finding (at [74] of the Reasons) that the relevant income was an incident of, or directly related to, the carrying on of the normal day-to-day activities of Denarda's drilling business. As the Tribunal said in that paragraph, the use of fuel was essential to the operation of the drilling rig and, therefore, to the carrying on of the normal day-to-day activities of the business.

82. For these reasons, Mr Doutch's grounds relating to the phrase "in the ordinary course of carrying on a business" should be rejected.

83. In relation to the Tribunal's finding at [56] of the Reasons (see [43] above), Mr Doutch's challenge to the finding of fact is premised on reading that paragraph in a particular way. Mr Doutch's submissions involve reading [56] of the Reasons as a finding to the effect that Mr Doutch knew before the drilling rig was relocated to Ravensthorpe that the customers would not be supplying the fuel. However, we do not think it is correct to read paragraph [56] of the Reasons in the way contended by Mr Doutch. We think the Tribunal was merely stating that Mr Doutch knew before the supply of the drilling services (that is, Denarda using the drilling rig to carry out drilling) under the contracts with Nickel Limited and Resources NL that neither would be supplying the fuel. This is the natural way to read the words the Tribunal used and is consistent with the evidence (suggesting that this meaning is more likely than Mr Doutch's reading of the paragraph). It follows that the premise of Mr Doutch's challenge to [56] of the Reasons is not established.

84. Read in the way we have indicated in the preceding paragraph, there is no basis to challenge the finding in [56] of the Reasons. It was open to the Tribunal to find that Mr Doutch knew, before the supply of the drilling services under the contracts with Nickel Limited and Resources NL, that neither would be supplying the fuel.

85. Further, we do not think that the finding in [56] of the Reasons, even if interpreted in the way contended for by Mr Doutch, had any material bearing on the core reasoning of the Tribunal as to whether the income received in respect of the Fuel Disbursements was derived "in the ordinary course of carrying on a business". The Tribunal did not specifically refer to this finding in its core reasoning at [74]-[76] of the Reasons. Given the way the Tribunal expressed its reasons at [74]-[76] of the Reasons, the finding at [56] was not material.

Conclusion

86. For these reasons, the appeal should be dismissed. There is no reason why costs should not follow the event. There will, therefore, also be an order that Mr Doutch pay the first respondent's costs.

 

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