COLEAMBALLY IRRIGATION MUTUAL CO-OPERATIVE LTD v FC of T

Judges:
Hill J

Court:
Federal Court

MEDIA NEUTRAL CITATION: [2004] FCA 2

Judgment date: 6 February 2004

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Hill J

The applicant, Coleambally Irrigation Mutual Co-operative Ltd (``CIMCL''), appeals against an appealable objection decision of the respondent Commissioner of Taxation (``the Commissioner'') disallowing CIMCL's objection against a private ruling made by the Commissioner on 17 April 2003. The ruling applied to the years of income ended 30 June 2001 to 30 June 2004 inclusive. It related to two questions which were stated in the ruling as follows:

``1. Are the sinking fund levy contributions paid or payable to Coleambally Irrigation Mutual Co-operative Limited assessable income under section 6-5 of the Income Tax Assessment Act 1997?

2. Are the sinking fund levy contributions paid or payable to Coleambally Irrigation Mutual Co-operative Limited assessable income under section 6-10 of the Income Tax?''

Of these two questions only the first remains a live issue between the parties.

The background facts the subject of the ruling

2. In 1997 the New South Wales government decided to privatise five irrigation schemes including one at Coleambally in New South Wales. Privatisation occurred in two stages. The first, which was implemented in 1997, involved vesting all the business undertakings and assets of the scheme in a statutory State owned corporation. Subsequently in 1999 the business and assets of the scheme were transferred from this corporation to another State owned corporation, Coleambally Irrigation Limited (``CIL''). The second stage, which took place on 9 June 2000, involved the State transferring its shares in CIL to the local irrigators for no consideration. The shares were allocated to the irrigators in proportion to their existing statutory and administrative water entitlements (one share per mega litre). CIL subsequently was converted to a co-operative under the Co- operatives Act 1992 (NSW) (``the Co- operatives Act'') and renamed Coleambally Irrigation Co-operative Limited (``CICL'').

3. CICL was responsible for water supply operations. It owned the existing infrastructure

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assets utilised in the Coleambally irrigation scheme and held the operating and bulk water licenses applicable to the scheme under the Irrigation Corporations Act 1994 (NSW). The infrastructure comprised some 2800 structures consisting of earthen channels, concrete structures such as regulators, bridges, culverts and siphons as well as pumps, meters and monitoring equipment. Some of the infrastructure dated back to the late 1950's. The first concrete assets were constructed in 1960.

4. Contracts were entered into between irrigator members of CICL and that co- operative pursuant to which irrigator members paid water supply levies to CICL for irrigation water delivered to the farm gate by CICL. Levies comprised a fixed component based on the irrigator's nominal annual water entitlement and a variable component (based on the amount of water actually delivered). CICL operates on a cost recovery basis aiming to provide water to members at the lowest commercially sustainable price.

5. The Irrigation Corporations Act 1994 (NSW) was repealed and replaced in 2000 by the Water Management Act 2000 (NSW) (``the WM Act''). Section 119 of the WM Act provides that regardless of the ownership of the land CICL is (unless acting under contract with a third party) always the owner of the water management works installed in or on the land by CICL. Water entitlements under the former act were replaced by access licenses pursuant to Schedule 9 of the latter Act.

6. On 21 January 2000 CIMCL was established and registered as a non trading co- operative under the Co-operatives Act. The purpose of establishing CIMCL was to divorce irrigation infrastructure and a sinking fund from financial risk arising out of CICL's trading. The rules of CICL and CIMCL make membership of the one entity conditional on membership of the other. Membership of the two co-operatives are identical save that CICL is a member of CIMCL. All irrigators are thus shareholders and members of CICL and CIMCL. Should an irrigator sell his or her farm, normally the vendor would transfer the shares and corresponding water entitlements in CICL to the purchaser, the vendor's membership of CIMCL would be terminated and the purchaser would be admitted as a new member of CIMCL.

7. CIMCL was established to construct, own and maintain all new irrigation infrastructure assets in the Coleambally district. It was to be financed by a sinking fund levy (``SFL'') being contributions imposed on its irrigator members. CIMCL was to be responsible for all major future maintenance and capital works of irrigation infrastructure in the district. Any irrigation asset which it constructed or replaced utilising the sinking fund was to be owned by CIMCL. A consequence was that over time the majority and perhaps all of the infrastructure assets employed in the irrigation scheme would be owned by CIMCL. They would, however, be used by CICL in its water supply operations.

8. The rules of CIMCL state the objects of the co-operative to be to replace and refurbish Coleambally irrigation infrastructure for the benefit of members and to provide future funding for the timely replacement and refurbishment of Coleambally irrigation infrastructure.

9. In addition to the water supply levies that irrigators are required to pay to CICL they are also required to pay SFL contributions to CIMCL. These are calculated on the basis of the number of shares and corresponding nominal entitlement that the member has in CICL. In determining contributions the Board of CIMCL is required to cover costs, expenses and overheads of CIMCL carrying out its primary activities including costs of repairs, refurbishment, maintenance and infrastructure construction, establishing reserves sufficient to meet anticipated expenses and liabilities of CIMCL in the future including a sinking fund to cover capital expenditure for the construction, refurbishment and replacement of future or existing irrigation assets in the areas of operation of CICL.

10. A service agreement was entered into between CICL and CIMCL whereby the SFL contributions payable to CIMCL were to be collected from the members of CICL on behalf of CIMCL and remitted to CIMCL. The first annual SFL contribution was paid by CICL members in the 2000-2001 income tax year. It is projected that the accumulated balance in the sinking fund would be $10.32 million by 2009 and $28.43 million by 2019. The sinking fund is dealt with separately in the accounts of CIMCL and does not include contributions from any non-members. It is invested and the income

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earned on investments is accepted by CIMCL to be income and is not the subject of the ruling.

11. An infrastructure services agreement was also entered into between CICL and CIMCL. Under this agreement CICL provides CIMCL with an annual asset maintenance and refurbishment proposal for CIMCL's approval including a schedule of works to be undertaken to bring each of the relevant assets to an acceptable state of repair and maintenance. CIMCL may, but is not required to, implement the proposal and the works referred to in it. CIMCL may, but is not required to, construct new infrastructure assets. The agreement is not exclusive and CIMCL may contract with third parties for the purpose of maintaining assets and refurbishment.

12. Whilst some maintenance and capital works could be expected to be undertaken each year by CIMCL it is anticipated that the first major expenditure spike for CIMCL will occur in approximately 15-20 years. It is expected that there would be a massive expenditure spike in approximately 40-60 years. CICL's irrigation infrastructure had a replacement value as at 30 June 2000 of $104 million. The average age of irrigation assets is 40 years with an expected design life of 60 to 100 years depending on the type of asset. It is for this reason that the majority of the infrastructure replacement expenditure is expected to be required in the next 20 to 40 years.

13. The request for ruling made the following comments concerning the distribution of surplus and winding up of CIMCL:

``41. In accordance with s 15 of the Co- operatives Act (NSW) 1992 CIMCL has standard non-trading rules that prohibit non trading co-operatives from giving returns or distributions of surplus or share capital to members other than the nominal value of shares (if any) on winding up. CIMCL does not issue shares. CIMCL's Rules were approves by the NSW Registry of Co- operatives as complying with the legislative requirements for a non-trading co-operative.

42. Rule 71 of CIMCL's Rules is headed `Co-operative Funds'. Rules 71.3 & 71.4 provide as follows:

• 71.3 Any surplus resulting from the Mutual's operation during a financial year, after providing for depreciation in value of the Mutual's property or for contingent liability for loss, shall be applied to carrying out the Mutual's objects.
• 71.4 An amount not exceeding five per cent of the surplus may be applied to any charitable purpose, or for promoting co- operation or any community advance- ment object.

43. Rule 75 is headed `Winding Up'. Rule 75.2 provides as follows:

• 75.2 If on the winding up or dissolution of the Mutual there remains after the satisfaction of all its debts and liabilities any property, this shall not be paid or distributed amongst the members of the Mutual but shall be given or transferred to an institution:-
  • (a) which has objects similar to those of the Mutual;
  • (b) whose constitution prohibits the distribution of its property among its members;
  • (c) which has been chosen by the members of the Mutual at or before the time of dissolution or in default thereof by the Chief Judge of such Court as may have or acquire jurisdiction in the matter.

44. Rules 71 and 75 further protect CIMCL from the risk of third party takeover aimed at stripping the Sinking Fund in a winding up or seeking to distribute funds collected for the purpose of maintaining CIMCL's assets.''

The ruling

14. The Commissioner answered the questions posed by CIMCL in its application for private ruling as follows:

``1. Yes, the sinking fund levy contributions paid or payable to Coleambally Irrigation Mutual Co-operative Limited are ordinary income. The sinking fund levy contributions are included in the Co-operative's assessable income under section 6-5 of the ITAA 1997 in the income year during which the contributions are received.

2. No, the sinking fund levy contributions paid or payable to Coleambally Irrigation Mutual Co-operative Limited are not statutory income. The sinking fund levy contributions are not included in the Co-

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operative's assessable income under section 6-10 of the ITAA 1997.''

The Commissioner's process of reasons

15. Accompanying the ruling was an explanation of the reasons of the Commissioner for answering the questions posed in the way they were answered. That explanation does not form part of the Notice of Private Ruling but provides a useful précis of the argument advanced by the Commissioner in support of his view that the sinking fund contributions paid or payable to CIMCL were assessable income under s 6-5 of the Income Tax Assessment Act 1997 (``the Act'').

16. At the heart of the debate between the parties is the question whether the sinking fund contributions fall within the mutuality principle so that they are not income in ordinary concepts and thus assessable income within s 6-5 of the Act. The Commissioner's view may be summarised as follows:

• • The fact that CIMCL might use the sinking fund levy to fund the construction of an asset or otherwise fund expenditure of a capital nature was not determinative of whether the amount it received was assessable income:
  GP International Pipecoaters Pty Ltd v FC of T 90 ATC 4413; (1990) 170 CLR 124.
• • CIMCL was in the business of constructing, owning and maintaining irrigation infrastructure assets so that amounts received in respect of these activities were income from carrying on its business. It is relevant also that the amounts were periodical.
• • Mutuality did not apply because the irrigator members did not directly participate in CIMCL's common fund in their capacity as the contributors to that common fund. Their participation was indirect. Rather, the refurbished or replaced assets were for use by CICL in its business so CICL and not the irrigators in their capacity as contributors to CIMCL obtained the benefits from them. The benefits to the members qua members were indirect.
• • There was no strict identity as a class between the direct contributors, ie all the members of CIMCL and the direct participant which was CICL alone.
• • CIMCL's Rules about distribution of surplus (Rule 71) and winding up (Rule 75) were inconsistent with an essential characteristic of a mutual association, namely that there must be complete identity as a class between the contributors and the participators. Accordingly the contributions received by CIMCL were not within the principle of mutuality and were not thus prevented from being income in ordinary concepts.

The submissions

17. The parties filed comprehensive written submissions. Not surprisingly the submissions filed on behalf of CIMCL addressed the various propositions advanced by the Commissioner in his explanation as summarised above.

18. At the hearing, which was listed for two days, senior counsel for CIMCL submitted that there were three matters upon which the case for his client depended. However of these three matters it became clear that there was no dispute in respect of two of them. They need, therefore, only be shortly noted.

19. The first matter related to what might be thought to be a ``dislocation'' between the sinking fund contribution of the members on the one hand and the interest the members had on the other hand, because of the fact that the sinking fund would most likely accumulate for a long time and on present expectations for some 40 years notwithstanding that in the meantime there could be some monies expended on short term repairs. Counsel for the Commissioner accepted (and with respect, correctly) that the long term nature of the sinking fund did not, of itself, have the consequence that the doctrine of mutuality did not apply.

20. In the course of this submission counsel for CIMCL emphasised that there was no suggestion that the projections as to the long term nature of the sinking fund, and particularly the 40 year spike in expenditure, were wrong. He further emphasised that the projections of expenditure detailed in the application for ruling (the detail of which I have omitted in the summary of the facts set out above) were merely projections and could be right or wrong and might be affected by events not presently contemplated, for example, climate change. It was submitted that this really added to, rather than subtracted from, the essential feature of the sinking fund contribution, namely that it was designed to provide benefits to the irrigator members.

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21. The second matter related to the agreements between CICL and CIMCL. It was submitted (and with respect correctly accepted by the Commissioner) that in collecting contributions from irrigator members CICL was a mere conduit for contributions made by the members of CICL. The contributions were not contributions made by CICL itself.

22. Further, it was submitted for CIMCL that the fact that CICL provided services to CIMCL did not have the consequence that the mutuality principle did not apply. Nor did it follow that CIMCL was carrying on a business because it employed CICL to perform services for it. A members' golf club, for example, it was said, would not be denied mutuality because it employed a greenkeeper to care for the club greens. This proposition was likewise not in issue between the parties.

23. Once these matters were accepted, there remained, so counsel for CIMCL submitted, only the one matter which could be relied upon by the Commissioner to deny the status of mutuality to the contributions made by the irrigator members of CIMCL and that was the consequence of Rules 71 and 75 concerning distributions of surplus and on winding up.

24. Counsel for the Commissioner was reluctant to accept that mutuality existed but for this one matter. He referred to the problem that CIMCL was not bound to carry out the work proposed by CICL under the service agreement between them as, at least, potentially another problem. I shall return to it later in these reasons. However, it suffices here to say that I would be inclined to the view that but for Rules 71 and 75 the principles of mutuality would apply in the present circumstances such that contributions to CIMCL would not be income in ordinary concepts. It is important, therefore, to consider whether Rules 71 and 75 operate to deny the status of mutuality to the contributions of CIMCL, as counsel for the Commissioner submits, or whether they do not as counsel for CIMCL submits. To understand the issue it is necessary now to say something about the principle of mutuality.

Mutuality

25. The principle of mutuality is easy to understand in its simplest manifestation. It is more difficult when it comes to be applied to more complicated situations.

26. The simplest manifestation of mutuality is to be found in the kind of fact situation considered by the High Court of Australia in
Bohemians Club v Acting Federal Commiss- ioner of Taxation (1918) 24 CLR 334. There an unincorporated social club established for the common personal benefit of its members and not for profit derived subscriptions from members which were used to defray the club's costs. Griffiths CJ at 337 pointed out that it was immaterial whether there were only two or three members or two hundred. His Honour continued:

``If there were two or three only, it would not occur to anyone to say that the two or three are collectively in receipt of income from the individuals. Nor are the committee of the club or the club itself. The contributions are, in substance, advances of capital for a common purpose, which are expected to be exhausted during the year for which they are paid. They are not income of the collective body of members any more than the calls paid by members of a company upon their shares are income of the company. If anything is left unexpended it is not income or profits, but savings, which the members may claim to have returned to them.''

27. The subscriptions in the Bohemians Club case were equal. But that would not seem to be a necessary prerequisite of mutuality. If subscriptions are unequal then there is a necessity that there be a:

``Reasonable relationship, contemplated or in result between what a member contributes and what, with due allowance for interim benefits of enjoyment, he may expect or be entitled to draw from the fund; between his liability and his rights.''

Fletcher v Income Tax Commissioner [1972] AC 414 (PC) at 423.

28. It follows also from the Bohemians Club case that it is not required that all members of a club use the facilities (which the members in substance own) equally cf per Gibbs J in
Social Credit Savings & Loans Society Ltd v FC of T 71 ATC 4232 at 4239; (1971) 125 CLR 560 at 573.

29. Nor is the principle limited to the case of contributions made for a common purpose to an unincorporated association. The same result would follow if the Bohemians Club had been

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incorporated. In such a case the corporation is treated:

``As a mere entity for the convenience of the members... in other words as an instrument obedient to their mandate.''

(
English and Scottish Joint Co-operative Wholesale Society Ltd v Commissioner of Agricultural Income Tax, Assam [1948] AC 405 at 419. So, for example, it was held that the income from certain, but not all, of its activities was mutual income of the incorporated Royal Automobile Club of Victoria:
Royal Automobile Club of Victoria (RACV) v FC of T 73 ATC 4153.

30. The simple manifestation of the principle of mutuality is summarised by McTiernan J in
Revesby Credit Union Co-operative Ltd v FC of T (1965) 112 CLR 564 at 574 where his Honour said:

``The principle of mutuality seems to me to be settled. Where a number of people contribute to a fund created and controlled by them for a common purpose any surplus is not income but is to be regarded as a mere repayment of the contributor's own money... Incorporation of the fund is not relevant... What is required is that the fund must have been created for the common purpose and owned or controlled by the contributors.''

31. Generally cases concerning mutuality have been divided into three different factual cases. The first is that class of case dealing with members' clubs and which generally presents no real difficulty. The second is that class of case dealing with mutual insurance (where a group of persons form a common pool by contributions to indemnify themselves against risks) and the third concerns rating. In Fletcher, Lord Wilberforce warned against regarding each situation as being of a like nature. So, for example, the simple case of a social club may involve there being no trade carried on by the group of persons who associate together for the common purpose. On the other hand, the insurance cases may involve the insurance entity being seen to be involved in a trade, although the object of the association for a common purpose is not the making of profits (see at 421). It is unnecessary here to consider the cases dealing with rating or insurance or indeed to seek to explore the question whether the idea of trade and mutuality are antithetical as the Commissioner's reasons for ruling sought to suggest.

32. It seems to be essential to the application of mutuality that the monies contributed are and remain ``in substance'' the monies of the contributors: cf per Mason J, with whom Barwick CJ, Menzies, Walsh and Stephen JJ agreed in
Sydney Water Board Employees Credit Union Ltd v FC of T 73 ATC 4129 at 4134-4135; (1973) 129 CLR 446 at 456. In the simple case of the members' unincorporated club the monies belong to the members in the normal sense of that expression. If the monies are not expended the members will have the right to have them returned to them. It is clear, however, that the word 'belong' as used in the above proposition is not used in its normal sense. In the case of an incorporated club the monies of the incorporated club will belong in law to the incorporated club itself, yet that will not deny mutuality for in substance the assets of the incorporated club can be seen to belong to its members.

33. It is said also to be essential to mutuality that there be a complete identity between the contributors and the participators, at least as a class. So, as was said by Upjohn J in
Faulconbridge (Inspector of Taxes) v National Employers' Mutual General Association Ltd (1952) 33 TC 103 at 125:

``... at any given moment of time the persons who are contributing must be identical with the persons who are entitled to participate; whereas it follows, in my judgment, that it matters not that the class has been diminished by persons going out of the scheme or that others may come in their place in the future.''

34. In the Social Credit Savings and Loans Society case it was held that a lending body which made loans to members at a rate of interest and was entitled to apply its surplus in paying benefits to employees, to provide interest rebates to borrowing members and subject thereto for distribution to all members, whether or not they borrowed, was not entitled to be regarded as subject to the doctrine of mutuality. This was because there was lacking the requirement of identicality between the contributors to the common fund and the participators in it. The common fund there was the payments of interest and the borrowers, therefore, the contributors. Many members were not borrowers, however. Further, the surplus (even after an amendment was made to the rules in an attempt to have the taxpayer

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comply with the mutuality principle by ensuring that any surplus could not be paid to members who did not borrow) could be paid to employees or the whole of the members. Gibbs J was of the view that the fact that the whole surplus could be paid to employees meant that there was not identity between the contributors and the possible participators. In other words the surplus did not belong to the contributors. See too
Revesby Credit Union Co-operative Ltd v FC of T (1965) 112 CLR 564.

35. The principles of mutuality were most recently discussed by a Full Court of this Court in
FC of T v Australian Music Traders Association 90 ATC 4536. In that case the taxpayer was an unincorporated non profit association. Its members were in the music trade. In previous years the taxpayer had organised a trade fair. In the year of income a third party organised the trade fair and paid the taxpayer a sum of money which was claimed to be a mutual receipt. The amount had some relationship between the space take at the fair by members and non members. Not surprisingly the amount received by the taxpayer was held to be assessable income.

36. Wilcox J with whom Davies J agreed, discussed in some detail the cases dealing with mutuality. His Honour found that there were two impediments to applying the principle of mutuality. The first was that there was not a reasonable relationship between contributions and benefits. Not all members took space at the fair. More importantly for the present case, the monies of the association could not be seen to be monies substantially belonging to the members. Rather, the monies became part of the general funds of the association to be dealt with in accordance with its articles. On liquidation any surplus was not distributable to members but rather had to be paid to an organisation having similar objects. The fact that such organisation might be selected by members was not enough. The surplus was not divisible among members.

37. With respect to Senior Counsel for the applicant the Australian Music Traders Association case is determinative of the present case as is also the Social Credit Savings and Loan Society Ltd. Both cases require that I dismiss the application unless they are distinguishable or, in the case of the former appeal, unless it was wrongly decided. Obviously I am bound to follow a decision of the Full Court. With respect, however, I do not think that it was wrongly decided.

The submissions of the applicant on Rules 71 and 75

38. So far as I understood the submission for the applicant it was that, in the case of a non profit co-operative like the applicant, contributions received by it would be subject to the principle of mutuality if there was a common purpose of its members for which purpose the contribution was received and which as part of that common purpose was to be expended in whole for the benefit of members and it was immaterial that the assets of the applicant might be distributed among non members in the event of liquidation.

39. It was submitted for CIMCL that mutuality did not require that the whole of the contribution made by members and unexpended, would go back to members in the event the co-operative was wound up. There could be mutuality, for example, it was said, if the whole of the amounts contributed were spent in furtherance of the common purpose and for the benefit of all members. This proposition can be accepted so far as it goes. If the constituent documents of the co-operative are put to one side, mutuality could apply in a case where all funds were expended so that the member's 'capital' would not be available to be returned to the members. And it can be accepted that in the present case there was a common purpose in the members of CIMCL, being the irrigators, that the contributions made by them would be used for infrastructure acquisitions and replacements as well as for repairs and that expenditure in these ways would benefit members proportionately. It may be said to be unlikely that irrigators would contemplate that there would be any unexpended funds available when CIMCL was ultimately liquidated.

40. But while expenditure of funds for the benefit of members, rather than return of funds contributed to members would not deny mutuality, it does not follow that expenditure would be a sufficient prerequisite for mutuality in a case where if the expenditure did not take place the funds could not be returned to members at all. If it did follow then every non profit company would be entitled to the benefit of mutuality so long as contributions were made for a common purpose which was intended to

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be carried out. The doctrine of mutuality does not go so far.

41. It is not suggested in the present case that CIMCL received the contributions impressed with a trust that it apply the contributions solely for the purpose of repair, replacement or acquisition of irrigation infrastructure and subject thereto, that contributions be held for the benefit of contributors or their successors in title. CIMCL is bound in contract to expend the monies it receives for the purposes for which it was established. But the terms of that contract, contained as it is in the constituent documents of CIMCL as a non trading co-operative, contemplate that the members might wind the co-operative up and Article 75 then deals with what is to happen to surplus funds. The fact that those surplus funds are forbidden to be distributed to members but must be distributed to others, has the consequence, it seems to me, that it is impossible to say that CIMCL is an entity to which contributions are made by its members and where those contributions remain the property of the members in the sense that expression is used in the cases as including a class of members. In the relevant sense the contributions do not ``belong'' to the members. This is but another way of saying that it is impossible to say of CIMCL that there is the requisite ``complete identity'' between the contributors and the participants (including identity as a class, rather than individual identity) where Article 75 would permit, indeed, require on a winding up that surplus funds be distributed otherwise than to members.

42. I am, of course, bound by the decision of the Full Court of this Court in Australian Music Traders. But, with respect, I think that the comments of Wilcox J, so far as concerned the matter of winding up were correctly made. It is not necessary in the present case to determine whether those comments form part of the ratio decidendi of the case. Clearly what was said by Gibbs J in Revesby Credit Union Co-operative concerning the possibility of assets being paid to employees by way of bonus is likewise binding upon me and is determinative of the present case.

43. I would note two matters that were raised in argument by counsel for the Commissioner. The first concerned the construction of Rules 71 and 75. It was submitted that it followed from the provisions of sections 13 to 15 of the Co- operatives Act that it would be possible for a non trading co-operative to provide that in the event of winding up surplus assets might be distributed to members. I need not determine this question. Clearly it would have been possible for CIMCL to have been incorporated as a trading co-operative so that its rules permitted distributions of surplus assets to members even if the submission of counsel as to the construction of the Co-operatives Act was not accepted. It did not do this. However, it is difficult to see that the fact that it might have been possible for CIMCL to adopt a different structure providing for distributions of surplus to members in the event of winding up has any bearing upon the result. CIMCL did not adopt a different structure. Its constituent documents provided that on liquidation surplus would not be distributable to members. The case must be decided by reference to what those constituent documents provided, not what they might have provided.

44. The second matter concerns the service agreement between CIMCL and CICL. As already noted the language of this contract is permissive and not mandatory so that CIMCL is not required to use the funds contributed to it by members to implement plans presented to it by CICL for infrastructure to be repaired, replaced or to be newly constructed. It was suggested by counsel for the Commissioner that this may have the consequence that the doctrine of mutuality would not apply in the present case as the funds contributed might not be applied for the common purpose said to exist. With respect, I do not think that the question of mutuality is dependant upon the terms of the agreement between CIMCL and CICL. It is relatively clear that whether CIMCL does or does not employ CICL it will be bound to apply contributions from its members to the repair, replacement or construction of irrigation infrastructure for the benefit of irrigator members. It hardly matters whether CIMCL does or does not follow the proposal put by CICL. However, it may also be noted that the shareholding of CIMCL and CICL are (but for the holding of a share in CIMCL by CICL) identical. It would, even if the argument had any cogency, be unlikely that CIMCL would ignore proposals put to it by CICL. In my view but for the lack of identity between contributors and participants brought about by Article 75 the contributions received by CIMCL from its members would be entitled

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to the benefit of mutuality and would not be assessable income.

45. The application must be dismissed with costs.

THE COURT ORDERS THAT:

1. The application be dismissed.

2. The applicant pay the respondent's costs.