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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G. Thompson (Member): The taxpayer in this case is a member of a partnership which carries on business as graziers and breeders of stud cattle in Western Australia. In respect of the year ended 30 June 1967 the partnership claimed a deduction under sec. 62AB of the Income Tax Assessment

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Act 1936-1967 in respect of a certain stud bull which it had purchased. Section 62AB of the Act provides for the allowance of a special deduction of 20% of the capital expenditure incurred by a taxpayer ``in relation to units of property being plant or articles owned by the taxpayer and for use by the taxpayer wholly and exclusively for the purpose of carrying on in Australia a business of primary production''. It was common ground that the partnership was carrying on in Australia the business of primary production, and it was also not disputed that for the purposes of the section, the bull should be regarded as new.

2. The real issue in this reference was, therefore, whether this stud bull constituted ``plant or articles'' within the meaning of sec. 62AB of the Act, so that it could be regarded as a new unit of property to which the special allowance was attached.

3. The legal practitioner who appeared for the taxpayer submitted that sec. 62AB of the Act is a special section designed for a special purpose, and that it should be construed in isolation, to ascertain whether the bull used by the partnership for the purposes of primary production came within the language of the section. He further submitted that other sections of the Assessment Act, such as Sub-division B, Division 2, secs. 28 et seq., should not be construed so as to have any over-riding effect or to deny the deduction otherwise allowable under the sec. 62AB of the Act. In other words, in his submission, the Board should construe sec. 62AB, and if the facts of the case came within it, the taxpayer's claim should be allowed.

4. The evidence discloses that the partnership was in the habit of purchasing stud bulls elsewhere in Australia and bringing them to the partnership property in Western Australia where they were used as stud sires. At the end of their useful life as stud bulls they were then sold to a slaughter house. This would ensure that the particular stud line would not be passed on elsewhere. The taxpayer's representative stressed that the bull was not used as trading stock as such by the partnership but was bought as a capital asset to stand as a stud sire and was then disposed of. According to his argument, it would then follow that the moneys received for the sale of the bull would also be capital moneys. This seens to be in conflict with the general pattern of the Income Tax Assessment Act; but I proceed to examine the arguments for the taxpayer in more detail.

5. Under sec. 6(1) of the Income Tax Assessment Act, ``trading stock'' is specifically defined to include live stock. This is somewhat artificial, as was pointed out by Turner J. in
Commr. of I.R. (N.Z.) v. Malcolm (1953) 10 A.T.D. 355 . This was a New Zealand case dealing with taxpayers who carried on the business of stud masters and the case particularly concerned moneys received by way of insurance for the loss of a stallion. Turner J. referred to certain Australian authorities including
Riddle v. F.C. of T. (1952) 9 A.T.D. 391 where McTiernan J. held that a racehorse used by the taxpayer for racing was live stock in the ordinary sense of the word, and came within the statutory scope of the expression trading stock.

6. The artificiality of the concept that cattle, which are not trading stock according to ordinary concepts, are required by virtue of the statutory definition under the Income Tax Assessment Act to be taken into account under secs. 28 and 32 of the Act was also recognised by Kitto J. in
F.C. of T. v. Wade (1951) 84 C.L.R. 105 at 114 . His Honour there confessed to some difficulty in accepting that view. However, in the same case, the other members of the Court, Dixon and Fullagar J.J., in a joint judgment also referred to the fact that all animals constitute trading stock in the case of taxpayers who carry on a business. At p. 113 (84 C.L.R. at 113) their Honours said -

``The Federal Act, however, places all animals in the category of trading stock in the case of taxpayers carrying on a business. It 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.''

7. It is incontestable, therefore, that by virtue of the statutory definition, and the provisions of the Act in Sub-division B commencing with sec. 28 of the Act, the subject bull, apart from the provisions of sec. 62AB, would be considered as trading stock and should be accounted for as such. It would thus not be a capital asset upon which depreciation would ordinarily be allowable. I now turn more particularly to the arguments of the taxpayer based upon, what he termed, the special sec. 62AB of the Act.

8. The taxpayer's representative cited
Quarries Ltd. v. F.C. of T. (1961) 106 C.L.R. 310 and referred to several passages in the judgment of Taylor J. to support his argument that the stud bull in question came within the scope of the expression ``plant or articles'' and thus constituted a unit of property which attracted the special deduction under sec. 62AB of the Act. Taylor J. in that case was concerned, inter alia, with certain sleeping units which were alleged to be ``plant or articles'' used for the purpose of producing assessable income within the meaning of sec. 54 of

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the Act. The case itself is quite distinguishable, therefore, in that it dealt firstly with inanimate objects, and secondly it was concerned with the allowance of annual depreciation under sec. 54 of the Act. It did not concern sec. 62AB of the Act, which is in issue in this case.

9. However, reference was also made to the case of
Yarmouth v. France (1887) 19 Q.B.D. 647 . The taxpayer relied upon a certain quotation from Lindley L. J. where he said in effect that plant included all goods and chattels fixed or movable, alive or dead, which the taxpayer keeps for permanent employment in his business. But that particular case dealt with a claim for compensation by an employee of a wharfinger who was injured in the course of driving a horse and cart belonging to his employer. It was held that the cart-horse was plant within the meaning of the particular statute in question. That was a special context. In my opinion, it would be indisputable, for example, that the horses belonging to a drover would constitute plant, and that bullocks belonging to a bullock driver (owner) would constitute plant. But the present case is different.

10. Reference was further made to a learned article by Sir Carleton Kemp Allen in 77 L.Q.R. 237 headed: ``What is an Article?'' In that brief article, the learned author raised the question whether an article should necessarily be confined to inanimate objects. The author was dealing mostly with cases involving bargain and sale, or the exposure of articles for sale. This again was a special context. The learned author went on to say

``One would hesitate to describe a Derby winner or a champion bull as an article, but that is what they seem to be for purposes of bargain and sale. As for animals ferae naturae reduced into possession, presumably in zoological circles any of God's creatures from an elephant to a flea may be a merchantable article.''

11. I have carefully considered the arguments and authorities cited by the learned representative of the taxpayer, but I have come to the conclusion that in the context of section 62AB of the Act, the stud bull in question cannot be subsumed under the title ``plant or articles'' within the meaning of the section. I think that the ordinary or general meaning of article as being confined to inanimate objects applies in the section when one has regard to the other inanimate items of property referred to therein.

12. In my opinion, it would require a very special context to extend the meaning of either ``plant'' or ``articles'' to living animals such as the subject bull. It would have been an easy matter for the legislature to have made reference to live stock in sec. 62AB had it been intended to extend the benefits of that section to live stock. In this connection it will be noticed in passing that in other sections of the Income Tax Assessment Act such as secs. 31,32,33 etc. the term live stock is specifically mentioned. In my opinion, because of the statutory definition, live stock such as the stud bull in question in this reference is trading stock, and falls to be dealt with for income tax purposes in accordance with the provisions of Sub-division B Division 2 of the Income Tax Assessment Act.

13. I also adopt, with respect, the quotation from the reasons of Mr. McCaffrey in
3 T.B.R.D. Case C106 at 627, which passage is cited by my colleague Mr. Dempsey in his reasons for decision. As Mr. McCaffrey also said in that case, which dealt with a stallion, the term plant is the very antithesis of trading stock under the Act. I would apply this dicta also to articles within the meaning of section 62AB of the Act. I accept that if plant does not constitute trading stock, then articles within the meaning of the phrase ``plant and articles'' in the said sec. 62AB also cannot constitute trading stock. But the legislature has specifically placed the taxpayer's stud bull in the category of trading stock. The bull cannot, therefore, in my view be simultaneously treated as plant or articles under sec 62AB of the Act, and trading stock under the other sections of the Act previously referred to.

14. I am unable to read sec. 62AB in isolation as the learned practitioner for the taxpayer sought to do. I am unable to give it any special or overriding effect so as to depart from the firmly held traditional view that live stock, such as the taxpayer's bull, are trading stock under the Act, and are to be dealt with as such for income tax purposes.

15. For the above reasons I would disallow the taxpayer's objection and confirm the assessment of the Commissioner.