Case D69

Members:
AM Donovan Ch
GR Thompson M
RK Todd M

Tribunal:
No. 2 Board of Review

Decision date: 2 November 1972.

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A. M. Donovan (Chairman); G. R. Thompson and R. K. Todd (Members): These references concern the disallowance by the Commissioner as deductions of a variety of expenditures incurred in relation to certain activities carried on by a partnership which consisted of the individual taxpayer (hereinafter referred to as ``S'') and two proprietary companies. The companies are family companies, and the facts of the case concern the actions and intentions of S. He is the person who has been most active in all respects in the partnership's businesses, and he is the substantial shareholder in the other two members of the partnership. Before referring in any detail to the items of expenditure sought to be deducted, it is desirable to set out the facts as we find them so that it will then be seen subsequently how the various items of expenditure arose. There was very little real dispute about the important facts of the case. There were however substantial questions as to the emphasis to be placed upon particular facts, and some vagueness as to dates. In all the circumstances our findings of fact have to be set out fairly fully.

2. S lives, and at all material times has lived, on a station property in high country in south-eastern Australia. He may be described as a pastoralist and grazier. The partnership referred to carries on business on three properties in the general area in which S lives, and it is engaged in conducting a Hereford stud, in grazing both cattle and sheep and in growing lucerne and barley. As so conducted, the partnership carries on at these properties a substantial business of primary production.

3. The weather conditions in the area where S lives are severe in winter and he has in the past suffered discomfort from an antrum condition. His mother had suffered from the same condition at some time in the past and had had operative treatment or the same which had caused considerable trouble and which S decided that he did not wish to undergo at any stage. Some emphasis was placed upon this factor at the hearing in relation to actions which S subsequently took, and it is desirable to set out the questions and answers in respect of the matter when he was examined by his counsel -

``Did you experience any discomfort yourself? - I did with my antrum during the winter months and the thought entered my head that it might be necessary for me to extend my interests to include somewhere which had a warmer winter climate.

Had you had any experience of antrum trouble in the family prior to that? - Yes, my mother suffered from it for years.

Did she have any treatment for it? - She did. She had an operation on it but it was not satisfactory. I saw the suffering she had after that and I was determined not to have an operation on my own antrum.

You were telling us that you could see the desirability of extending your operations somewhere else for the winter? - Yes, I had that in mind.''

4. In 1956 S visited the annual agricultural show at the capital city of another State for the purpose of looking at cattle, and was told there that there was land for sale on an island off the coast of that State and he became interested in this. He wrote to the owner of the island and later visited it shortly before Christmas 1956.

5. The owner of the island told S that commercial crops of pineapples had previously been grown on the island, and he led S to believe that it would be a commercial proposition to grow tropical fruit there. There were some fruit trees already growing in the garden around a house which was on the island property, and these trees included avocado pears. S visited an area on the mainland adjacent to the island and there discussed with one B and certain other persons the possibility of growing tropical fruits on the island. B knew of the island because he had been engaged in the carrying of goods there for the then owner over a period of some years.

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6. S called at the Department of Agriculture in the capital city of the State in question on the way back to his home State from the island, and he discussed with one of the officers of the department whether it would be possible to grow avocado pears on the island. He was apparently given to understand that there was every possibility of doing so.

7. S had first thought of venturing into the growing of avocado pears before he originally spoke with the owner of the island. He did not however inspect any other property in the State in question, whether on other islands or on the mainland. Nor did he make any enquiry to find out the value of unimproved land around that area at that time. He had not at any time thought of acquiring any existing orchard or plantation. He stated that, having gathered that rainfall is an important aspect of growing avocado pears, he gained the impression from discussions with the owner and other persons in the area on the mainland adjacent to the island that he had visited that there was an adequate rainfall on the island for the growing of avocado pears or tropical fruits generally. He did not make any investigation in relation to the soil on the island until after he had been there for some five years or thereabouts. Further, he had not ascertained what was the depth of top-soil on the island. He had however understood from the owner of the island that the depth was sufficient for growing tropical fruits.

8. When he had returned to the capital city of his home State, S made enquiries from the proprietor of a firm of wholesale fruit merchants as to the marketing of avocado pears. He made certain calculations as to possible returns upon the basis that at that time the price of avocado pears was 50/- per case. He stated that from his enquiries an avocado tree would commence to bear a crop in approximately five years and would be in full production when it had reached an age of eight to ten years. He calculated that a pilot farm of 60 trees would bring in a gross return of approximately £3,000 per annum.

9. S determined to purchase the land on the island that was available for sale, namely an area of 122 acres. He offered the sum of £8,500 to the owner, and this offer was accepted. Of the 122 acres purchased, a high proportion was rugged, hilly and timbered, and only some 40 acres could be regarded as usable as cultivable land. The majority of this usable land was in an area which we shall call ``the valley''.

10. S went into possession of the property which he had purchased on the island in April 1957. The vendor arranged for the engagement on S's behalf of one D as a full-time employee. S proposed to plant avocado trees in an area near the house as soon as suitable men could be obtained to help D. By 23 July 1957, men had arrived on the island to cut scrub and fell trees for the purpose of planting avocados. The soil in the valley was more fertile than the soil elsewhere and was superior to anything that had been cleared. Further, the view was expressed that the valley would be easier to clear than the area about the house. It was, however, the area around the house that was in fact cleared and remains the only portion of the property upon which any cultivation has taken place.

11. D was on the island for about six months. The house could not be lived in and it became necessary for extensive works to be carried out to render it habitable. After D left, one J became a full-time employee on the island. J appears to have been something of a ``jack-of-all-trades'', and had indicated to S that he had a knowledge of commercial banana growing and market gardening and had worked amongst pineapples, and stated that he was interested in growing things as a hobby alone. In addition to this, he had been engaged in such things as scrub falling, burning off and grubbing, timber getting and sleeper cutting, as well as some contract fencing work. S engaged J, but did not interview him prior to his appointment. J was there for three years and carried out a good deal of work on the island, including the carrying out of repairs and renovations to the house, the continuing of clearing and the setting up of a water supply and irrigation system.

12. During 1958 J planted some 50 avocado trees. A good deal of discussion had taken place with people on the mainland as to the most suitable manner of going about the planting of the trees, and the method in fact adopted was that known as the dry root

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method. This method of propagating was recommended by every nurseryman who produced avocados at that particular time. The method, however, was subsequently shown to be undesirable and was abandoned. Its unsatisfactory nature was amply proved on the island for the avocados did not thrive. Some trees died soon after they were planted. After about 15 months 14 trees were still alive and doing reasonably well. They had been protected with hessian when planted but they had been attacked by various pests. J had sprayed to try to get rid of the pests but was only partially successful. The avocado trees were a failure. They apparently contracted a virus which attacked the roots and which was shown, as the result of further research, to attack avocados propagated by the dry root method. As well as the avocados, J planted a number of other crops including nitrogen producing legumes. Letters from him to S referred to a number of possible crops or projects and gave an indication of the work being done by him on the island generally. In these letters he seems to have placed no particular emphasis on the avocados. By October 1959 he was describing the avocados as ``a dead loss''.

13. Throughout the whole of the relevant period there lived on another portion of the island one W. W lived on the island on his own, and although he was a man of various talents, including it seems a zest for heavy labouring work, he was in fact primarily an artist. After J left, W was employed, though not full-time. It had been intended that his employment should be temporary, but it lasted for about three years. He was paid £5 per week. He was succeeded by one A who also remained for about three years, and thereafter W returned.

14. J and W in fact did a good deal of work on the property at one time and another. J burned up trees that had been felled in his predecessor's time. He planted the avocado trees, erected hessian shades for them and did most of the building necessary for the erection of a 40,000 gallon water tank and installing it at the top of the hill behind the house. This was a very substantial task. He laid an irrigation pipe from the valley, and previously to that he had put in another pipeline on the other side of the property which was not in fact successful. He cemented the verandahs of the house and employed labour to rebuild the house. During W's time a fairly large irrigation dam was built below a point where three streams met. It was about 200 yards long by 10 yards wide and 9 feet deep at the deepest. Four tons of cement and the necessary sand was used in the construction of the retaining wall. W also erected a collapsible steelframed tank of some 10,000 gallons capacity to collect excess water from the roof of the house as a garden tank.

15. From the outset S caused the employees on the island to keep rainfall and weather records. This was in accordance with the practice carried out on all properties used by the partnership. The records kept at the island were of rainfall, highest mean temperature, lowest mean temperature and humidity. S considered that these records would be invaluable as a future guide to fruit growing, and seasonal conditions generally, on the island.

16. The irrigation systems and additional tanks referred to were rendered necessary because experience and the records kept indicated that, although the annual rainfall on the island was very high, it did not occur in sufficient quantities during the early growing period of avocado trees.

17. It can be said that while attempts were made to grow various items of produce on the property, the most significant attempts made were those relating to the growing of avocados and of limes. It is necessary to set out in rather more detail the attempts which were made to grow the latter. The monsoon which in the period up to 1957 had lasted over three months from January until the end of March, subsequently failed and monsoonal rains were said to have been virtually limited to the month of March. These conditions were said to have produced a comparative drought situation and to have continued up to the time of the hearing of these references. After the failure of the avocados, W, acting on his own behalf, made enquiries about the growing of West Indian limes, and discovered to his satisfaction that they were a product for which there was a ready market. He had first mentioned the possibility of growing these to S in about 1958. At that time the Tahitian lime was readily available in Australia, whereas the West Indian lime was not. W did not believe

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that there was at the relevant time a single orchard of West Indian limes in Australia. W appears to have interested S in the commercial possibilities of West Indian limes as a product likely to take the place of the unsuccessful venture into the growing of avocados. In the second half of 1959, one M, who had commercial and hotel interests, indicated to W that there would be no difficulty in disposing of the whole crop of West Indian limes. After the discovery that the avocados would not be a success, W went with J to a neighbouring island to obtain West Indian lime seed. This seed was unprocurable from any nursery in the neighbouring State at this time and plants were either unavailable or at least very hard to obtain. J and W then planted some 100 trees in boxes, probably at S's property, though that is not entirely clear. Nor is it clear when they did; on one view this was in 1958-1959, on another it was not until 1962. S remembered seeing quite a number of little limes there, he thought in tins under a breadfruit tree either when J was there or shortly afterwards. In the middle of 1962 W advised the taxpayer by letter that he had obtained prices of 4d. or 5d. a piece for limes, that he had planted a dozen trees experimentally, and that it might be worth his while to plant a small orchard if the experiment proved a success. Subsequently, though again it was not clear when, the limes were transplanted, apparently during A's time on the property, from the boxes into an orchard on S's property. They extended over an area of about 1½ to 2 acres. By the time of the hearing of the references the evidence of W was that there were about 60 trees in the orchard, whereas S thought that there were 30 to 40. The difference in these estimates is not necessarily due to the fact that S makes infrequent visits to the island and is not too familiar with such details. There is the further fact that, according to W, it is very difficult to count them because they are planted in a rocky valley, covered with tree stumps, in a very haphazard manner. By the time of the hearing the first trees planted were cropping, but they were not mature trees. W, who gave evidence, estimated that the then capacity to produce limes would be half a case a week per tree over three months fruiting season. To the date of the hearing, no income had in fact been derived by the partnership from any activities on the island but it seemed likely that in the future crops of limes would be available for sale.

18. A good deal of the evidence in relation to the decision to experiment with the limes, to the question of when and where and how seedlings were raised from the seeds, as to when the seedlings were planted out and, indeed, as to whose decision it was that the experiment should be proceeded with at all was at best vague and at worst contradictory. The clearest evidence as to the date of transplanting of the lime seedlings appears to be that of W who said that the transplanting occurred about two years after J left. This would put the date of transplantation at about 1963, although S himself thought it was about 1965 or 1966. This difference appears to arise out of a difference of opinion as to the date when J left. Furthermore, we were left with the distinct impression from the evidence that the whole project in relation to the planting of the limes was one which had been evolved by W and in which S played very little part indeed. S's evidence was that W had informed him that he thought that limes could be a suitable alternative commercial proposition. He spoke to him of the West Indian lime, he said that they were particularly required by a certain section of the community, especially the Americans. On being asked by his counsel: ``Did you look into the prospects of growing these West Indian limes commercially?'', S said: ``From what Mr. W had told me, yes.'' Asked: ``Did you form some conclusion about it?'', he answered: ``It seemed to me that they would be an alternative that I could turn to.'' He was then asked: ``Did you in fact turn to it?'', to which he answered: ``I did''.

19. S has visited the island some 15 or 16 times in the 14 years that preceded the hearing of the references. On these occasions he was on the average there for some two days and one night only. On these brief visits he used to discuss current events generally with the person living on the property and come to an understanding with him as to what would be done. He does not, however, seem to have given very precise instructions to these persons. When the property was purchased there were tropical fruits and

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shrubs growing there, including paw-paws, mango trees, breadfruit and fruit-salad plants. These were not sufficient to be of any commercial value but were sufficient for whoever was living on the island from time to time.

20. Two other aspects of the evidence should be referred to. The first is that S gave evidence that he had purchased the island property for the purpose of making it into a commercial proposition. Since receiving the amended assessments giving effect to the disallowances which are the subject of these references in the middle of 1968, he has in effect been ``marking time'' but he has not in his own mind basically changed his objective of making the property into a commercial proposition and he has never abandoned his original intention of so doing.

21. The other matter of evidence to which reference should be made is that S, in every venture he has undertaken in relation to activities of primary production, has always in the first place commenced a ``pilot project'' in order to ensure that any new scheme of primary production is viable before it is fully entered into. The activities which we have described above, in particular in relation to the avocados and to the West Indian limes, were it was said examples of the carrying on of such ``pilot projects''.

22. The items ultimately claimed as deductions in the years 1961 to 1966 may be classified under the following headings, against which we note the section in the Act which was claimed to justify the allowance of such deduction: Wages, petrol and oil, travelling expenses, interest on money borrowed to purchase the property, bank charges, sundries, freight and cartage, insurance, rates, gas for employee's stove, and lime trees (sec. 51); repairs and replacements (sec. 53); tree felling (sec. 51 and sec. 75); expenses of discharge of mortgage (sec. 67A). There were also claims for depreciation in respect of an employee's residence (sec. 57AA); and in respect of irrigation system, concrete mixer, water tank, water supply, boat, dinghy, motor mower, windmill, windmill charger and employee's stove (sec. 54).

23. No claim to deduct the total expenditure incurred in relation to the items irrigation system, water tank and water supply under sec. 75 was made, the claim being made for depreciation only. The only item therefore claimed under sec. 75 was the sum of $60 for tree felling, which was claimed in respect of the year ended 30 June 1963. Very little therefore turns on the applicability of sec. 75, and it may in our opinion in any event be fairly briefly disposed of. Reference was of course made by counsel for the taxpayers to
Southern Estates Pty. Ltd. v. F.C. of T. (1967) 117 C.L.R. 481, and it was argued that a consequence of that decision was that since the partnership was at all relevant times ``engaged in primary production on land in Australia'', namely on its grazing properties, then such of its expenditures in relation to the island property as fell within the categories set forth in sub-clauses (a) to (l) of sec. 75(1) of the Act should be deductible. The ratio decidendi of the Southern Estates case is not altogether easy to perceive. It may be restricted to this, that on the facts there proved the taxpayer's purpose was not one of engaging in primary production, but one of reselling the land at a profit, and that as he was not in fact engaged in primary production but was merely getting the land ready for primary production, the deductions claimed were not allowable. This was clearly the view of Windeyer, J. And at p. 491 of the report, Taylor and Owen, JJ. said -

``If, as was the case here, the real or substantial purpose of incurring the expenditure was to make the land capable of being used for primary production in order to resell it at a profit, sec. 75(1) has, in our opinion, no application. The sub-section is not designed to benefit a taxpayer who buys land which, as it stands, cannot be used for primary production and expends money upon improvements to it so that he may resell it to the best advantage when it is in, or approaching, a state in which it can be used for that purpose. Its purpose is to benefit a taxpayer who, at the time he incurs the expenditure, is himself engaged in primary production on the land.''

24. We do not think that the case can be taken as compelling a conclusion that a

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person incurring expenditure of the kind here in question in the circumstances which we have set out can be said to be relevantly ``engaged in primary production'' merely because he undoubtedly engages in primary production of a totally different character, on a totally different scale, under totally different conditions in a part of the Commonwealth over one thousand miles distant from the land in respect of which the deduction is claimed.

25. We postpone consideration of the applicability of secs. 53, 54, 57AA and 67A, and now turn to consider the claims for deductions under sec. 51. Counsel for the taxpayers submitted that the fact that it was not possible in this case to point to some item of income which was referable to the various expenditures in relation to which deductions were claimed was irrelevant, and this is of course beyond doubt correct: see
F.C. of T. v. Finn (1961) 106 C.L.R. 60. He also went on, in relation to the first limb of sec. 51(1) of the Income Tax Assessment Act, to refer to
Amalgamated Zinc (de Bavay's) Ltd. v. F.C. of T. (1935) 54 C.L.R. 295, and to
Ward & Co. Ltd. v. Commissioner of Taxes (N.Z.) (1922) A.C. 145. As Dixon, J. (as he then was) said in de Bavay's case (supra) at p. 309.

``In a continuing business, items of expenditure are commonly treated as belonging to the accounting period in which they are met. It is not the practice to institute an inquiry into the exact time at which it is hoped that expenditure made within the accounting period will have an effect upon the production of assessable income and to refuse to allow it as a deduction if that time is found to lie beyond the period. And, in the case of expenditure for which the taxpayer contracted a liability during an earlier accounting period than that in which it has matured, it is not the practice to consider whether its effect upon the production of income of a still continuing undertaking has already been exhausted.''

26. Again, in
Vallambrosa Rubber Co. Ltd. v. Farmer (1910) 5 T.C. 529, expenses of maintaining a rubber estate were held to be deductible although only a portion of the trees on the estate had reached a stage where they were producing rubber. And since the conclusion of the hearing in these references, judgment has been handed down in
Thomas v. F.C. of T. 72 ATC 4094. In that case a barrister practising in Brisbane and living on a 7½ acre property 15 miles therefrom planted 1,800 pine trees, 75 macadamia nut trees and 30 avocado pear trees. Various factors intervened which reduced the number of trees somewhat in some cases and damaged others. At the time of the hearing only two of the avocado pear trees survived but they were then ready to bear fruit. 25 of the nut trees had survived and 35 more had been planted. Less than 1,200 of the pine trees remained. The question before Walsh, J. was whether the appellant was in the circumstances ``a person who carried on... a business of primary production'' within the meaning of sec. 157 of the Act. Since we did not have the benefit of argument by counsel for the taxpayer in relation to this decision, and since reliance would no doubt be placed upon the reasoning of Walsh, J. therein, we think that it is desirable to set out in full the following passage from the judgment which commences at p. 4099 of the report -

``On the foregoing facts the question whether or not the appellant embarked upon a business venture has to be determined. There is no doubt that the appellant's chief occupation was the practising of his profession and that the tree farming, if it had a business character, was relatively of minor importance both as to the time devoted to it and as to the returns to be expected from it. But a man may carry on a business although he does so in a small way. In my opinion the appellant's activities in growing the trees ought not to be found to have been carried on merely for recreation or as a hobby. I leave out of account the pine trees, the growing of which did not have, I think, a significant commercial purpose or character. But the appellant in planting the avocado pear trees and the macadamia nut trees set out to grow them on a scale that was much greater than was required to satisfy his own domestic needs and he expected upon reasonable grounds that their produce would have a ready market and would yield, if the trees became established, a financial return which

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would be of a significant amount, with a relatively small outlay of time and money, and that this return would continue for a very long time. In these circumstances I think it is proper to find, and I do find, that he set out to engage in producing the pears and the nuts as a business and that he was in the tax year carrying on that business, which was a business of primary production.

I have given close consideration to the criticisms that were advanced as to the lack of business efficiency with which the appellant conducted the operations. But in the circumstances I have not found that this should lead to a conclusion that it was not a business venture. On various matters the appellant did take advice. It is not in doubt that he made mistakes. But many persons carry on a business for the competent conduct of which they have not previously acquired much knowledge or experience. I think that the fact that the appellant bought the land for more than the ruling price of farming land is of no significance. He does not claim that farming was the purpose for which he bought the land. He claims that afterwards he saw that there was a chance to turn some of it to use by growing trees on it. If he proceeded then, as I think he did, to use it for the growing of trees to such an extent that this might be regarded as a business operation, it matters not that if his original purpose had been farming he might have chosen some other cheaper land.''

27. Features referred to by the learned Judge which bear some similarity to the present case but which were discounted by him should be mentioned. They are (i) lack of business efficiency and the making of mistakes in the conduct of operations; (ii) the fact that the business was carried on in a small way; (iii) payment of a higher price for the land than was merited. It is however one thing to discount such features in the case of a professional man who had apparently had no knowledge or experience of the undertaking upon which he was embarking. The case is different however where the person in question is an experienced, competent and efficient primary producer. It is of course true that the individual taxpayer had no experience of growing avocados or lime trees. But the desultory and rather lackadaisical nature of the activities which were engaged in on the island were entirely out of character with the hard bitten and firmly based business principles upon which his existing businesses of primary production were grounded. These comments are applicable also to the initial decision to purchase the island property. Having regard to the limited amount of cultivable land on the property, the price paid to the vendor was high. No consideration was given to the cost of transporting produce to the mainland. Our conclusion on the evidence is that while we think that the taxpayer intended, and certainly hoped, that commercial development of the property would occur, the steps taken to 30 June 1966, constituted no more than rather casual experimentation with what could be grown there, the installation of some basic equipment, and the protection, by means of the appointment of lowly paid resident employees, of the property, including the fixtures therein, from marauders.

28. In all the circumstances therefore, we do not think that the principles set out in de Bavay's case or the Vallambrosa case assist the taxpayers. It is one thing to say that expenditure may be allowed as a deduction although it only produces results in the way of income in a future year. In this case however, not enough had, in our view, been done to convince us, upon the balance of probabilities, that the partnership had embarked upon a project of deriving income or carrying on a business. Accepting the evidence of S, the intention to do so at some time in the future may well have been there. The suggestion that S's antrum trouble was what inspired the purchase of the property in our opinion tends to support the notion that what was really intended was some future development. The infrequency and brevity of his visits to the island so far suggest that his medical worries have been neither pressing nor immediate. On the whole, we are led to conclude that what was done was mere ``tinkering'' with the property in order to decide what might be done in the future. Nor does it assist the taxpayers to dignify such operations with the term ``pilot projects''. That very term seems to us to be apt

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principally to describe experimentation with a view to embarking upon the deriving of assessable income or the carrying on of a business, and not to a situation wherein a taxpayer may be said to have actually embarked upon such a course. In this consideration lies, in our opinion, the difference between this case and Thomas v. F.C. of T. (supra).

29. It was submitted in argument however that the effect of
Tweddle v. F.C. of T., 7 A.T.D. 186, was that it would be sufficient, for the taxpayers to succeed in relation to sec. 51, for the taxpayers to show that it was merely intended to carry out a series of operations constituting research into the possibilities of growing avocados, limes or whatever on the island property, at least with a view to making some profitable use of them. We do not think that that case stands for any such proposition. There the property in question, despite the more unusual aspects of the running of it connected with the breeding of percheron horses, was being operated as an ordinary stud farm, and was being managed by an experienced farmer. The difficulty occurred because it was said that in the circumstances a profit could never be shown and that it was being run ``simply and solely for the admittedly laudable but entirely unbusiness-like object of satisfying a foible of the appellant to breed high class stock'' (see p. 190). In these circumstances Williams, J. held that the taxpayer was nevertheless engaged in the business of farming on that property and that it was nothing to the point that it might be very difficult to make it pay. We see no connection between a case where a taxpayer has embarked upon an identifiable and orderly (if misguided from the point of view of making profits) business venture, and a case where, as here in our view, a taxpayer has never really worked out what he wants to do and has not commenced any serious activities at all.

30. Our conclusion therefore is that the partnership was neither engaged in gaining or producing assessable income, nor was it carrying on a business for the purpose of gaining or producing such income. This disposes of the claims based on sec. 51, and it is necessary now to consider the claims made under secs. 53, 54, 57AA and 67A.

31. Under sec. 53, expenditure may be claimed for repairs to plant, etc. used for the purpose of producing assessable income, or in carrying on a business for that purpose. The claim must therefore suffer the same fate as those made under sec. 51.

32. Under sec. 54 depreciation may be claimed of ``any property, being plant, or articles owned by a taxpayer and used by him... for the purpose of producing assessable income, and of any property being plant or articles owned by the taxpayer which has been installed ready for use for that purpose and is during that year held in reserve by him shall, subject to this Act, be an allowable deduction''. It is clear from the foregoing that the plant, etc. here in question was not used for the purpose of producing assessable income within the meaning of sec. 54. Further, in view of the fact that we have found that the partnership never effectively embarked on any identifiable project for the production of assessable income, nor did it ever commence to carry on any business, it follows that the plant, etc. cannot be said to have been installed ready for use for the purpose of the production of assessable income.

33. As to sec. 57AA, the initial prerequisite for a special depreciation allowance under this section is that depreciation be allowable under sec. 54, and as we have already indicated that no claim can in this case be founded on that section this claim fails also.

34. As to sec. 67A, expenditure in connection with a discharge of mortgage is allowable under that section as a deduction only if the property in question was used for the purpose of producing assessable income. We have already given our reasons for finding that this was not the case and this claim therefore fails also.

35. We have not dealt with various questions which arose as to whether various liabilities were liabilities of S or of the partnership. In view of the findings set out above, it is unnecessary to discuss them.

36. The assessments in question were amended assessments and the Commissioner claims that the issue of the same was justified by sec. 170(2) of the Act. In our opinion there

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was here a failure to make full disclosure of all the material facts necessary for the assessment, and there was an avoidance of tax. Indeed, the contrary was barely argued.

37. In our opinion the objections fail and the Commissioner's decisions upon them were correct.

Claims disallowed