New South Wales Associated Blue-Metal Quarries Ltd v Federal Commissioner of Taxation

94 CLR 509
1956 - 0223B - HCA

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(Judgment by: Dixon CJ, Williams J, Taylor J)

Between: New South Wales Associated Blue-Metal Quarries Ltd
And: Federal Commissioner of Taxation

Court:

Judges:
Dixon CJ
Williams J
Taylor J

Subject References:
Taxation and revenue
Income tax
Assessment
Mining operations
Deduction

Legislative References:
Income Tax and Social Services Contribution Assessment Act 1936 (No 27) - 122; 122A

Hearing date: SYDNEY 26 April 1955; 3 May 1955; 17 November 1955; 18 November 1955; 21 November 1955; MELBOURNE 23 February 1956
Judgment date: 23 February 1956

MELBOURNE

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Judgment by:
Dixon CJ
Williams J
Taylor J

This appeal concerns the meaning and application of the words "mining operations upon a mining property" occurring in s. 122 (1) of the Income Tax and Social Services Contribution Assessment Act 1936-1952.  These words form part of a condition on which the application of that section and of s. 122A depends.  The condition runs thus:

"Where a person, in connection with the carrying on by him of mining operations upon a mining property in Australia or the Territory of New Guinea ...".

A taxpayer who fulfils this condition and has incurred expenditure of a capital nature on necessary plant, development of the mining property or housing and welfare for employees engaged in connection with the mining operations is entitled to a deduction in respect of the expenditure from his assessable income.  

The deduction is ascertained by apportioning what is called the residual capital expenditure over the remaining estimated life of the mining property.  A somewhat elaborate formula is provided for calculating the residual capital expenditure.  It is needless, however, to go into this; for its exact nature does not affect the matter.  

The enactment gives an election to a taxpayer who has incurred expenditure specified in s. 122 (1) on plant or development.  He may elect that the provisions of s. 122A shall apply to the expenditure he has made and this the appellant did in the present case.  Expenditure to which such an election applies becomes an allowable deduction from the assessable income of the year in which the expenditure was incurred.  But to qualify for this deduction the taxpayer must fulfil the condition quoted from s. 122 (1).  The question upon which the appeal depends is whether the appellant did so.  

Apparently the appellant combines the functions of an operating company and a holding company.  It holds shares in a number of subsidiary companies whose businesses consist in obtaining from the soil blue-metal or, in some cases, silica or gravel.  But for itself the company conducts extensive operations for the winning and crushing of blue-metal.  It is upon these operations, which are conducted at Prospect in New South Wales, that the claim of the appellant company to a deduction under ss. 122 and 122A depends.  

Blue-metal or bluestone is the common name applied to basalts or dolerites: see Morris Austral English S.V. "Bluestone"  "Bluestone".  The stone is won in an open-cast working, rightly called a quarry, and it is crushed upon the site. At the place where it has been quarried the bed of igneous rock lay under an overburden of varying depths from seven to sixty feet. Electrically driven mechanical navvies are used for the removal of the overburden and of the stone worked.  Before a quarry of this kind is opened the depth of the overburden and the character of the stone beneath are ascertained by boring by means of drills of the kind used for the purposes of mining.  The rock face is broken down by drilling and by the use of explosives.  The stone is thrown down on the floor of the quarry where it is picked up mechanically and loaded into waggons for delivery to the crushing plant.  At some places the face of stone extends upwards nearly ninety feet from the floor of the quarry and, where the overburden is deep, the surface may be sixty feet above that.  The stone goes through a succession of three crushings which progressively reduce the size of the product.  It is raised from one crusher to another by conveyer belts.  The first crusher is on the floor of the quarry.  At the present time road making and concrete building and construction create great demands for crushed bluestone.  

In connection with the workings at Prospect the appellant company during the year of income incurred expenditure amounting to PD74,058 in respect of plant and machinery; to PD493 in respect of an electricity sub-station; to PD901 in respect of its office and furniture, and to PD356 in respect of certain amenities for workmen; making in all a sum of PD75,813.  That sum forms the deduction claimed.  The commissioner refused to allow the deduction.  

The case made for the appellant in support of the claim is in substance that the machines and processes employed to win the bluestone and to  crush it are indistinguishable from those which characterize mining; that with the great progress made in earth moving equipment and kindred mechanical operations open-cast working has replaced and tends increasingly to replace subterranean working, wherever possible; that just as open-cast working has the same purpose and uses much of the same equipment as subterranean working, so the operations possess the common characteristic of involving a wasting asset in which the expenditure upon plant must be written off progressively year by year; that in short the only ground for saying that the expenditure was not upon mining operations on a mining property must be found in the fact that the workings are open-cast and from a tax point of view it is a ground having no relevance.  

Kitto J., who heard the company's appeal from the assessment, considered that the expenditure had not been incurred in connection with mining operations carried on upon a mining property and dismissed the appeal.  The basal reason for this conclusion is made clear by the following passage from his Honour's judgment.  "While `mining' is nowadays given an extended meaning in relation to the winning of substances which have come to be thought of as generally obtained by underground working, so as to include the extraction of such substances even by means of surface excavations, yet such an extended meaning is not ordinarily given to the word in relation to other substances.  For them the word `quarrying' is usually employed, though this again is by way of extension since the primary significance of the noun `quarry' is a pit for the cutting of blocks of stone such as those in question in Stronach's Case. <sup>[F1]</sup>   It would, I think, be unusual to apply the word `mine' to open diggings for the obtaining of stone of a kind which does not call up, by association, the idea of mining in the sense of sinking a shaft and tunnelling in pursuit of a desired substance". ^[F2]   In the view so expressed we agree.  

The meaning of the words "mine" and "mining" like the word "minerals" is by no means fixed and is readily controlled by context and subject matter.  Few words have occasioned the courts more difficulty than "minerals" but in some degree that is because in legal instruments it is seldom, if ever, used in its accurate or scientific sense and yet the word possesses no secondary meaning at once accepted and definite.  No doubt the word "mine" has also proved a source of difficulty, but the difficulties have been fewer and perhaps less persistent.  The word seems always to have been somewhat indefinite in its application.  Judicially, however, its primary meaning unaffected by context is taken to refer to underground workings and not open-cast workings or quarrying.  "Mining", said Kindersley V.C., "is when you begin only on the surface, and, by sinking shafts or driving lateral drifts, you are working so that you make a pit or tunnel leaving a roof overhead": Darvill v  Roper, ^[F3] at p. 299 [61 E.R. 915, at p. 918].  The same learned judge in Bell v  Wilson ^[F4] said:

"I cannot entertain the smallest doubt that a mine and a quarry are not the same.  It would perhaps require some labour to define precisely what each is; but we know this, that a mine, properly speaking, is that mode of working for minerals by diving under the earth, and then working horizontally or laterally; whereas a quarry is where the working is sub dio". ^[F5]

 

The Vice-Chancellor gave this as one of two grounds for deciding that, under an exception from land conveyed of "all mines and seams of coal and other mines metals and minerals", the quarrying of freestone or sandstone was not legitimate.  The ground was upheld by Turner L.J. and Knight-Bruce L.J. on appeal ^[F6] notwithstanding that, differing from the Vice-Chancellor, their Lordships considered that freestone was a mineral within the meaning of the exemption.  The judgment of Turner L.J. contains a reference to some etymology of the word "mine" which may be dubious; cf. Skeats Etymological Dictionary and The Oxford English Dictionary s.v  "mine" and Lewis and Short Latin Dictionary s.v  "mino".  But that was only by way of support for the conclusion that mines are underground workings.  An observation contained in the judgment gives point to the conclusion:"The case then is, in this singular position, that the defendants were entitled to the stone working it by underground mines but were not entitled to work it from the surface". ^[F7]   It is indeed but an application of the test which Tenterden L.C.J. in R. v  Brettell ^[F8] said was fixed by R. v  Sedgley, ^[F9] at p. 74 [109 E.R. 1068, at p. 1071]:

"That case establishes that, in order to determine whether an excavation in the earth constitute a mine or not, we are to look to the mode in which the article is obtained, and not to its chemical or geological character". ^[F10]

 

In Lord Provost and Magistrates of Glasgow v  Farie ^[F11] Lord Macnaghten said:

"The meaning of the word `mines' is not, I think, open to doubt.  In its primary signification it means underground excavations or underground workings". ^[F12]

But there are certain metals, minerals and substances which have been traditionally recovered by underground workings.  They have thus become associated in idea with the concept of a mine and the association of ideas has made it inevitable that whatever the form of the excavation that is made for the purpose of winning them, whether underground or open-cast, it will be called a mine and the operations will be called mining.  This may be an extension of the primary meaning of mining, but it must we think be recognized that, where the context or subject matter does not otherwise require, it forms today one of the natural applications of the words "mine" and "mining".  In this sense it is part of the prima facie meaning.  It is true that Lord Herschell said in Lord Provost and Magistrates of Glasgow v  Farie: ^[F13]

"The word `mines' is, I think, in a secondary sense, very frequently applied to a place where minerals commonly worked underground are being wrought, though in the particular case the working is from the surface". ^[F14]

But his Lordship did not mean by the use of the word "secondary" to imply that the meaning did not naturally attach to the word in the absence of a contrary indication.  

To Lord Watson it appeared to be beyond question that for a very long time the word "mines" has been used in ordinary language to signify either the mineral substances that are excavated or mined or the excavations, whether subterranean or not, from which metallic ores and fossil substances are dug.  "It does not occur to me", his Lordship said, "that an open excavation of auriferous quartz would be generally described as a gold quarry; I think most people would naturally call it a gold mine": Lord Provost and Magistrates of Glasgow v  Farie, ^[F15] at p. 677.  In the same case Lord Watson emphasized the flexibility of the words "mines" and "minerals" which he said "are not definite terms: they are susceptible of limitation or expansion, according to the intention with which they are used". ^[F16]   "But however the word may be used", said Lord Macnaghten, "when we speak of mines in this country, there is always some reference more or less direct to underground working". ^[F17]  

Now in the present case the material worked, bluestone, is completely outside the scope of the metals minerals or substances the winning of which is associated in thought or tradition with underground workings.  Bluestone quarries are familiar sights in many parts of Australia and the expression is equally familiar in speech.  No one speaks of a bluestone mine.  The phrase would sound odd and incongruous.  Even more odd would it be if a bluestone quarry were called a mining property.  

The policy upon which s. 122 and s. 122A proceed supplies no sufficient reason for giving any wider meaning to the words "mining operations" and "mining property".  No doubt the policy is in part founded in the propriety of allowing a deduction for a proportioned part of expenditure upon a wasting asset.  And it may be conceded that much of the plant in a quarry is of this kind.  But, as the Assessment Act shows at a number of points, the policy of the legislature has always been to make special concessions to mining as a means of winning precious metals and valuable minerals from the soil: see ss. 23 (m), 23A, 44 (2) (c) and (d), (3) and (4), and 78 (1) (b).  One may be sure that it is this policy which led to the making of a special provision to deal in the case of mining with what after all is a problem in functional obsolescence or depreciation of general occurrence in terminating undertakings and wasting assets.  

In Deputy Federal Commissioner of Taxation (Q.) v  Stronach, ^[F18] the Court applied, in effect, the foregoing interpretation to the words "operations carried on in Australia in mining" which occurred in the Sales Tax Assessment Act.  In that case reasons were given for distinguishing the decision in Australian Slate Quarries Ltd  v  Federal Commissioner of Taxation. ^[F19]   The same distinction applies to the present case, but we feel bound to say that we find ourselves unable to concur in much that is contained in the judgment of Isaacs and Rich JJ. in the case of the Australian Slate Quarries. ^[F20]  

In our opinion the appeal should be dismissed.