W.A. Hughes Pty. Limited v. Federal Commissioner of Taxation.

Members:
Kelly J

Tribunal:
Supreme Court of Queensland

Decision date: Judgment handed down 24 October 1980.

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Kelly J.

This is an appeal from the decision of a Taxation Board of Review on references in relation to assessments in respect of income derived by the appellant during the years ended 30 June 1976 and 30 June 1977 respectively. Objections lodged on behalf of the appellant were disallowed by the Commissioner. The Board upheld the decision of the Commissioner and the assessments were confirmed.

The questions for determination on the appeal relate to claims for the allowance of deductions in respect of investment allowance under Subdiv. B of Div. 3 of Pt. III of the Income Tax Assessment Act, which were not allowed by the Commissioner. In the year ended 30 June 1976 the claim related to a Leyland Super Hippo truck and hoist purchased by the appellant and in the year ended 30 June 1977 it related to a Caterpillar Wheel Loader leased by the appellant from its bankers.

Since about 1967 a coal-hauling business was carried on under arrangements whereby the appellant owned the equipment required for the carrying on of the business which was then used by two subsidiary companies which constituted a partnership and this partnership carried out the day to day functions of the business. The appellant bore the running costs in relation to the equipment and certain other charges. In each of the two years concerned, the appellant charged the partnership a sum determined arbitrarily by its accountant and described in the 1976 return as ``Vehicle running, administration charges and equipment hire'' and in the 1977 return as ``Vehicle running and administration charges''. The charge was determined at the end of each financial year but moneys were paid by the partnership to the appellant from time to time during the year as required.

In the appellant's 1976 return the Leyland Super Hippo was shown as having been purchased on 8 March 1976 and a ``New hoist for the above'' was shown as having been purchased on 21 June 1976. The purchase price of the Super Hippo was paid on 8 March 1976 and the dealer's invoice relating to it is dated 24 February 1976. Two matters in relation to this equipment which were the subject of oral evidence were whether the contract for its acquisition had been entered into on or after 1 January 1976 or before that date and whether the hoist purchased on 21 June 1976 was for the Super Hippo or for some other vehicle. On consideration of the evidence given before the Board and before me I have come to the conclusion that it is more probable than not that an enforceable contract for the purchase of the Super Hippo was not entered into until some time on or after 1 January 1976 and that the hoist the subject of the claim was, contrary to what is shown in the return, for a vehicle other than the Super Hippo, although there was nothing which would suggest that it was purchased on a date other than that claimed, namely, 21 June 1976.

The question of whether a deduction was allowable in respect of these items then turns on the operation of sec. 82AA which is in the following terms:

``Subject to the following provisions of this Subdivision, this Subdivision applies in relation to a unit of eligible property acquired or constructed by the taxpayer that is -

• (a) in the case of any taxpayer, for use by the taxpayer wholly and exclusively -
  • (i) in Australia; and
  • (ii) for the purpose of producing assessable income otherwise than by -
    • (A) the leasing of the eligible property;
    • (B) the letting of the eligible property on hire under a hire-purchase agreement; or
    • (C) the granting to other persons of rights to use the eligible property.''

Paragraph (b) has no application to the present case and it is to para. (a) to which attention must be directed.

I was referred to the decision of the Supreme Court of New South Wales in
F.C. of T. v. Tourapark Pty. Ltd. 80 ATC 4229, in which Woodward J. held that ``leasing'' in cl. (A) of sec. 82AA(a)(ii) means leasing in the course of providing finance by the lessor to the lessee under a procedure similar to that used by leasing companies and that ``the granting to other persons of rights to use'' in cl. (C) should be construed ejusdem generis

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ATC 4480

with the analogous terms in cl. (A) and (B) and therefore means granting such rights in the course of or in relation to some operation involving the provision of finance. With great respect to the learned judge I am unable to agree that cl. (A) and (C) should have the restricted meaning which he proposes and I am unable to accept the reasoning which led him to interpret these clauses in the way in which he did. In my view the words used in those clauses should be given their ordinary meaning and there is no justification for limiting them to transactions involving the provision of finance.

In this case I would consider that it could properly be said that the property concerned was acquired by the appellant for use by it wholly and exclusively in Australia for the purpose of producing assessable income. As I understand the authorities, property may be ``used'' by a person notwithstanding that he leases it to another (see, for example,
Ryde Municipal Council v. Macquarie University (1979) 53 A.L.J.R. 179 at pp. 181, 182) and I would think that the same principle should apply where rights to use the property are granted to other persons. The appellant's purpose in acquiring the property was that it should be used by it by making it available for use by the partnership and that in consideration of its thus being made available some payment would be received by the appellant as part of the charges categorised as ``Vehicle running, administration charges and equipment hire'' and that it would thus produce assessable income.

To my mind there is a substantial argument in favour of the view that what was done by the appellant constituted ``leasing'' of the property. ``Lease'' is defined in sec. 82AQ(1) as meaning in Subdiv. B in relation to property, ``grant a lease of the property or let the property on hire otherwise than under a hire-purchase agreement''. The Shorter Oxford Dictionary gives as one of the meanings of ``let'' - ``to grant the temporary possesson or use of, in consideration of rent or hire'' and as one of the meanings of ``hire'' - ``payment contracted to be made for the temporary use of anything''. Here the temporary use of the property was being granted by the appellant to the partnership and payment was being received from the partnership for the use of this property along with other property although it would not appear that any identifiable part of the overall payment made could be attributed to the use of this particular property. However, I do not find it necessary to determine whether this does constitute a letting of the property on hire as I consider that cl. (C) of sec. 82AA(a)(ii) is certainly applicable.

In my view the partnership was clearly being granted a right to use the property. As I see it, there is no necessity for the arrangement whereby the partnership used the property to be the subject of any formality or that the right should be irrevocable or for any defined period. I would consider that the arrangement under which the partnership had the use of the property was one which came squarely within cl. (C), and that being so, Subdiv. B has no application. In my opinion the deduction claimed in respect of the 1976 year was properly disallowed.

The Caterpillar Wheel Loader in respect of which the deduction was claimed in the 1977 year was the subject of a lease agreement dated 15 February 1977 between the Commercial Bank of Australia Limited and the appellant. The agreement was apparently executed by the appellant on that date but was not executed by the Bank until 23 March 1977. The Wheel Loader was delivered to the appellant on 16 February 1977 and thereafter it was used by the partnership although the precise date on which that use commenced does not appear.

The effect of cl. 12 of the lease agreement was that the agreement was not binding upon the Bank and the letting contemplated in the agreement was not to commence until it had been signed on its behalf by a bank officer. However, on delivery of the goods the lessee was to be a tenant at will of the goods at a daily rent. Consequently as from 16 February 1977 the appellant became a tenant at will of the Wheel Loader.

The question which arises in respect of this property is whether while the lease was in force the lessee entered into a contract or arrangement with another person for the use of the property by that other person. If such was the case sec. 82AG(3)(d) would operate so that Subdiv. B would not apply in relation to the property.

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ATC 4481

It was submitted on behalf of the appellant that the arrangement between the appellant and the partnership for the use of the property was that made in 1967 and that there was not a separate arrangement made in respect of each item of equipment acquired. I do not consider that this is the correct view and I would think that the preferable view is that there was an arrangement made in respect of the use by the partnership of this particular item of equipment either prior to its acquisition as, for example, when its acquisition was contemplated, or after its acquisition. There is no evidence that any arrangement for the use of the Wheel Loader by the partnership was made prior to its acquisition. At the latest, when the partnership actually commenced to use the equipment, which could not have been before 16 February 1977, there must have been an arrangement made for its use, but I can see no proper basis for inferring that any such arrangement was made before the lease came into force, that is, before 16 February 1977 when the tenancy at will commenced. The Commissioner in disallowing the deduction by reason of the operation of sec. 82AG(3)(d) has assessed the appellant on the basis that Subdiv. B does not apply and the appellant has not shown that he was wrong in so doing and consequently it has not discharged the onus which lies on it of showing that the assessment is excessive.

In my view the appeal in relation to both assessments should be dismissed.