Case C20

Judges:
FE Dubout Ch
G Thompson M
N Dempsey M

Court:
No. 3 Board of Review

Judgment date: 8 April 1971.

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F.E. Dubout (Chairman): In this reference the taxpayer, through a partnership of which he is a member, is claiming a deduction under sec. 62AB in respect of a stud bull purchased during the year ended 30 June 1967. The brief facts in the reference have been covered by my colleagues and I need not repeat them. It is sufficient to say that the partnership carries on a business of primary production in Australia, as required by sec. 62AB and that the bull may be regarded as ``new'' for the purposes of that section. What has to be decided is whether the bull constitutes ``plant or articles'' within the meaning of sec. 62AB, and whether the expenditure incurred in its purchase is a capital

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ATC 92

expenditure.

2. If the taxpayer is to succeed in his claim, it is necessary to accept the argument of the legal practitioner who appeared for him that sec. 62AB should be interpreted as a single section, in isolation from other provisions of the Assessment Act. Although by reason of the definitions of ``live stock'' and ``trading stock'' in sec. 6 of the Act, the animal in this case is trading stock, he submitted that that would be so only for the purposes of those provisions of the Act where the words ``trading stock'' occur in the text. Since those words do not occur in sec. 62AB, it is only necessary to decide whether the bull is within the description of ``plant or articles'' for the purposes of that section. On that basis, it would be immaterial that elsewhere in the Act there are provisions which give to the animal what Dixon and Fullagar J.J. described in
F.C. of T. v. Wade (1951) 84 C.L.R. 105 at p. 114 as an ``artificial'' character of trading stock.

3. At this stage, I must say that if the interpretation contended for did prevail there would be a case for treating the bull as plant, cf.
Riddle v. F.C. of T. (1952) , although there are indications within section 62AB, in the references there to certain items of property, that the legislature had in contemplation inanimate objects or what might broadly be described as machinery. It is not necessary for me to consider the argument that the bull is an ``article'' because the case for plant is, in my view, a stronger one, always assuming, of course, that the section is read in isolation from the rest of the Act.

4. After careful consideration of the argument presented for the taxpayer, I am of the opinion that the rather literal, purely linguistic interpretation of sec. 62AB that it demands is untenable in the context of the whole Assessment Act. It seems to me that the statutory treatment of animals as ``trading stock'', in a business of primary production, is fundamental to the legislative scheme of taxing primary producers. It is a factor which enters directly into the computation of taxable income. As was said by Dixon and Fullagar J.J. in Wade's Case (supra) at p.113, ``It (the Federal Act) requires the animals on hand at the beginning and end of the period to be taken into account and inferentially the purchase and sale of such animals''. In the passage quoted, I refer in particular to the words ``inferentially the purchase and sale'' etc. In fact, the Act does not leave the allowance of a deduction for purchases of live stock to be determined solely as a matter of inference, but specifically provides in sec. 51(2) that expenditure incurred in the purchase of trading stock shall be deemed not to be an outgoing of capital or of a capital nature. That sec. 51(2) has application not only to trading stock in the ordinary sense but also to statutory or ``artificial'' trading stock is clear from the remarks of Kitto J. in Wade's Case (supra) at p. 115, where His Honour said -

``I should mention that by virtue of sec. 51 (2) expenditure in the purchase of stock which, though by nature capital assets, are `used...as trading stock' - which I understand to mean, are used in a business so as to be, by virtue of the definition trading stock of that business for the purposes of secs. 28 and 32 - is deemed not to be an outgoing of a capital nature.''

5. We have then, in the present case, a situation where, through the operation of the live stock accounts, the partnership has been allowed a deduction for the purchase of the bull. The expenditure incurred in its purchase has been treated as a revenue outgoing in the process of making the assessment. The taxpayer now seeks to bring within sec. 62AB the identical animal in respect of which a deduction has already been allowed under sec. 51, in its character as a non-capital item. It would, in my opinion, be inconsistent with the scheme of the Act as a whole to treat as ``plant'', for the purposes of a particular section, an item which is deliberately treated elsewhere as trading stock. As the late Mr. McCaffrey said, in
3 T.B.R.D. Case No. 106, at p. 627, ```Trading stock' and `plant' are mutually exclusive categories under the Act'', and I do not think that with the introduction of sec. 62AB in 1963, there was any intention to upset that dichotomy. I would accordingly conclude that the bull in this case cannot be regarded as plant, and that the money outlaid in its purchase was not, for the purposes of the Act, an outgoing of capital.

6. I should add that in considering this matter I have not overlooked the provisions of sub-sec.(8) of sec. 62AB, but I consider that the language employed therein, e.g. the reference to ``a unit of property'', is clearly allied to the language of the depreciation sections, and that the sub-section is intended to ensure that the deduction under sec. 62AB is allowed in addition to depreciation.

7. My decision, therefore, is that the taxpayer's objection should be disallowed and that the assessment be confirmed.