Amalgamated Zinc (De Bavay's) Ltd v Federal Commissioner of Taxation

(1935) 54 CLR 295
(1935) 9 ALJR 342
(1936) ALR 67
(1935) 3 ATD 288

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(Judgment by: LATHAM CJ)

AMALGAMATED ZINC (DE BAVAY'S) LTD v COMMISSIONER

Court:

Judges: Latham CJ
Rich J
Starke J
Dixon J
Evatt J
McTiernan J

Subject References:
Taxation and revenue
Income tax
Deductions
Compulsory contributions to fund
Continuing obligation to contribute
Outgoings
Loss made

Legislative References:
Income Tax Assessment Act 1922 (Cth) No 37 - ss 23(1)(a); ss 26

Hearing date: 15 November 1935; 19 December 1935
Judgment date: 19 December 1935

MELBOURNE

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Judgment by:
LATHAM CJ

The following written judgments were delivered:

LATHAM C.J. In the first place the taxpayer company claims that the sums sought to be deducted are outgoings "actually incurred in gaining or producing the assessable income" (Income Tax Assessment Act 1922-1934. s. 23 (1) (a). The sums in question were contributions paid by the company to a fund in pursuance of a statutory obligation under the Workmen's Compensation (Broken Hill) Act 1920 (N.S.W.). The fund provides compensation for "mine-workers" (or their dependants) if the mine-workers suffer from certain diseases or if they die in consequence of those diseases. The definition of "mine-worker" limits the application of the term to persons whose names were on the pay-sheet or who were in the employ of any of the Broken Hill mines on 1st May 1919. The company was on that date engaged in the business of treating tailings and producing zinc concentrates and other metalliferous substances, and the company employed mine-workers in these operations. The company discontinued this business in 1924. The liability to contribute to the fund still continues, and in the years ending 30th June 1932 and 30th June 1933 the contributions paid by the company were PD1,207 0s. 2d. and PD1,175 11s. 6d. respectively. During those years the company did not derive any income from the treatment of tailings or the production of zinc concentrates etc The assessable income of the company in those years was derived from investments and from a hall at Broken Hill in which it had an interest.

The phrase "losses and outgoings actually incurred in gaining or producing the assessable income" may, in relation to outgoings, be read as meaning that the outgoings must be an expenditure which has an effect in gaining or producing income, e.g., the purchase price of goods which are subsequently sold. But it is difficult to see how a loss, as distinct from an outgoing, can over gain or produce income. On the contrary a loss, as distinguished from an outgoing, simply and merely reduces income-or capital, as the case may be. In order to make the section intelligible it must, in my opinion, be read as meaning "losses and outgoings actually incurred in the course of gaining or producing the assessable income."

In this case, however, the outgoings in question have no relation whatever to the assessable income of the years in question. It is true that, in cases of continuing businesses, it has been conceded (perhaps upon a not very strict construction of this or a similar legislative provision) that expenditure may be allowed as a deduction though it produces and is possibly designed to produce results in the way of income in a future year and not in the year in relation to which income is being assessed (Ward & Co v Commissioner of Taxes ^[F1] ). So it has also been held that expenditure which has a direct relation to income of a past year can be deducted in a later assessment year where it is of such a character that, in a continuing business, it must be met from time to time as a part of the process of gaining assessable income (Herald and Weekly Times Ltd v Federal Commissioner of Taxation ^[F2] ). But even this benevolent interpretation cannot assist the taxpayer in a case like this, where there has been a complete cessation of the income-producing operations out of which the necessity to make the outgoing arose.

In the second place, it is claimed that the sums in question should be deducted under s. 26 (1) (a) of the Income Tax Assessment Act 1922-1934. I agree with what my brother Dixon says as to the great difficulties of interpreting and applying this section, but I also agree with him that it is not necessary to deal with these difficulties in this case. The provision relied upon cannot apply, for the reason that the "loss" claimed was not made "in carrying on a business." If it is to be regarded as a "loss" (as distinct from an outgoing), it takes place whether the company carries on any business or not. The position is the same if the section is read as being limited to the case of a taxpayer who conducts more than one business, so as to enable him to deduct a net loss in one business from what would be the taxable income derived from his other business or businesses. Upon this construction the loss claimed as a deduction must still be a loss made in carrying on a business.

Upon the view which I have taken it is not necessary to consider whether deductions allowed under ss. 23 and 26 can be excluded by the provision of s. 25 (e) that a deduction shall not, in any case, be made in respect of money not wholly and exclusively laid out or expended for the production of assessable income.

In my opinion the question asked should be answered in the negative.