SUNRAYSIA BROADCASTERS PTY LTD v FC OF T

Judges:
Davies J

Court:
Federal Court

Judgment date: Judgment handed down 13 June 1991

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Davies J

This is an appeal from a decision of the Administrative Appeals Tribunal (``the Tribunal''), constituted by Senior Member R.A. Balmford, in which the Tribunal upheld a decision of the Commissioner that certain expenditure incurred by Sunraysia Broadcasters Pty Ltd (``Sunraysia'') in the year ended 30 June 1986 was expenditure of a capital nature [Case X80, 90 ATC 589]. The amount claimed, $339,934, constituted the expenses of an application made by Sunraysia to the Australian Broadcasting Tribunal.

Analogous issues have been considered by the High Court of Australia in several cases including
Sun Newspapers Limited v. F.C. of T. (1938) 5 A.T.D. 87; (1938) 61 C.L.R. 337,
Hallstroms Pty Limited v. F.C. of T. (1946) 8 A.T.D. 190; (1946) 72 C.L.R. 634,
Broken Hill Theatres Pty Limited v. F.C. of T. (1951-1952) 9 A.T.D. 306 and 423; (1951-1952) 85 C.L.R. 423 and
F.C. of T. v. Snowden & Willson Proprietary Limited (1958) 11 A.T.D. 463; (1958) 99 C.L.R. 431.

The Tribunal thought that the expenditure was expenditure on capital account. I agree with the Tribunal, and, as I think that the present is a clear case, I need state my reasons only briefly.

The crux of the distinction between capital and revenue was set out in the classic statement by Dixon J. in Sun Newspapers Limited v. F.C. of T., where his Honour said at A.T.D. 93-94; C.L.R. 359:

``The distinction between expenditure and outgoings on revenue account and on capital account corresponds with the distinction between the business entity structure or organisation set up or established for the earning of profit and the process by which such an organisation operates to obtain regular returns by means of regular outlay, the difference between the outlay and returns representing profit or loss.''

Sunraysia was the licensee of a commercial radio station, 3MA, which operated in the AM band. It gained its licence in 1933 and, subject to there being some areas which overlapped with other licensees, it effectively had a monopoly on radio broadcasting in the Mildura area. This enabled Sunraysia to provide what it called a ``horizontal range of programmes, intended to provide something for everybody, including material of specifically local interest''. It was the policy of Sunraysia to provide such a horizontal range of programmes, which it regarded as the most desirable form of broadcasting, best serving the needs of the community.

However, in 1982, the Broadcasting Act 1942 (Cth) was amended to provide for the grant of supplementary FM radio licences to persons who already held commercial AM radio licences. The intent of the Act was to introduce choice in country areas. The amending legislation, which was contained in the Broadcasting and Television Amendment Act 1982 (Cth), was passed on 31 December 1982.

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ATC 4532

Pursuant to that legislation, Sunraysia lodged an application for a supplementary licence and the relevant expenses were incurred in pursuing that application, which is still unresolved.

For present purposes, a major point is that Sunraysia did not regard the acquisition of a new FM licence as ``an asset or an advantage for the enduring benefit of a trade'', to use the expression of Viscount Cave L.C. in
British Insulated and Helsby Cables Limited v. Atherton [1926] A.C. 205 at 213. Sunraysia regarded an FM licence as a detriment which, if a competitor gained it, would interfere with its horizontal range of programming and which, if Sunraysia gained it, would be likely to cost it money, at least in the first few years.

The Tribunal recorded the following facts, inter alia:

``The expectation of the applicant, as expressed at the hearing of this matter, was that if an independent commercial FM station was established in the area, and the applicant attempted to continue to provide its existing services, i.e. to provide an adequate and comprehensive service as required by the Broadcasting Act, the applicant would be forced into bankruptcy. It would be compelled, in order to survive, to abandon talk programmes, and such services as football coverage. It would probably have extensive music programmes on relay, with `windows' for local advertisements, rather than its present coverage of different local interests. Those controlling the applicant did not wish to be forced into operating in this way: they wished to continue to provide a general local service. Even if the applicant were successful in obtaining a supplementary FM licence itself, it was not certain that it would break even. There would certainly be losses in the initial years.''

(the emphasis is mine)

Those passages are sufficient to show that Sunraysia made its application not because it regarded the FM licence as a valuable and enduring benefit, but because it thought that, if a competitor gained the FM licence, the whole structure of its business earning enterprise would change, horizontal programming would become impractical, and Sunraysia may be forced into bankruptcy. The Tribunal's forceful words on this subject were well supported by the evidence before it and are not the subject of challenge in this appeal.

This was a clear case where the expenditure went to the heart and nature of the business enterprise. I would accept that, in Sunraysia's view, the expenditure was designed to protect the business enterprise rather than to gain an additional benefit. But Sunraysia considered that the business enterprise as it had been carried on since 1933 was at risk. Its expenditure was therefore capital expenditure, as explained by Dixon J. in Sun Newspapers and as was illustrated by the decision in that case and by Broken Hill Theatres Pty Ltd v. F.C. of T. cited above. The expenditure was not such as might be expected from year to year in the carrying on and maintenance of the business enterprise. In its crucial finding, the Tribunal referred to the words of Dixon J. in Sun Newspapers at A.T.D. 97; C.L.R. 364:

``... in principle the transaction must be regarded as strengthening and preserving the business organisation or entity, the profit yielding subject, and affecting the capital structure.''

The facts fully support the Tribunal's application of this principle. As Dixon C.J., McTiernan, Fullagar and Kitto JJ. said in Broken Hill Theatres at A.T.D. 424; C.L.R. 434:

``The advantage of being free from Boulus's competition and of all other competition for twelve months is just the very kind of thing which has been held in many cases to give to moneys expended in obtaining it the character of capital outlay.''

In Snowden & Wilson, where the expenditure was held to be of a revenue nature, Dixon C.J. emphasised at A.T.D. 465; C.L.R. 437:

``An examination of the facts does not support the view that the proceedings in Parliament and before the Royal Commission imperilled the existence of the business or the capital assets of the company.''

The contrary was fact in the present case.

In this appeal, counsel for Sunraysia relied not only upon the fact that the FM licence was not regarded as an asset but also because Sunraysia thought that the grant of an FM licence to a competitor would preclude it,

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ATC 4533

Sunraysia, from complying with its undertaking to ``provide an adequate and comprehensive service pursuant to the licence''. I regard this last matter as of little significance. I am sure that the Australian Broadcasting Tribunal would have looked at the totality of the programmes provided by the AM and FM licensees and would not have considered each licensee bound to provide a horizontal range of programmes providing ``something for everybody'' and satisfying all in the community.

For these reasons, I shall dismiss the appeal with costs.

THE COURT ORDERS THAT:

1. The appeal be dismissed with costs.

2. The applicant pay the respondent's costs of the application.