Willeroo and Manbulloo Ltd v Federal Commissioner of Taxation

(1964) 111 CLR 336

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(Judgment by: Kitto J)

Between: Willeroo and Manbulloo Ltd
And: Federal Commissioner of Taxation

Court:

Judge:
Kitto J

Subject References:
Income tax (Cth)

Judgment date: 4 September 1964

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Judgment by:
Kitto J

These two appeals relate to the income tax payable by the appellant upon income derived in the year ended 31st October 1958. The Commissioner issued a notice of assessment on 1st April 1960 and the appellant objected that the assessment was excessive for having allowed too little for depreciation in respect of certain structural improvements described generally as a road train base. By a notice of amended assessment of 17th November 1960 the Commissioner notified an increase of the assessment, and the appellant objected that the amendment wrongly reduced the deduction allowed for depreciation in respect of certain cattle movers and cattle trailers generally called road trains. The question raised by each objection was whether the relevant deduction for depreciation should have been calculated, as the Commissioner considered, solely under s. 54 of the Income Tax and Social Services Contribution Assessment Act 1936-1958 (Cth), or, as the appellant contended, under that section and s. 57AB in combination. (at p338)

Under s. 54 (1) depreciation is an allowable deduction if it is depreciation during the year of income of any property, being plant, which is owned by the taxpayer and used by him during that year for the purpose of producing assessable income. "Plant" is defined by s. 54 (2) to include structural improvements on land which is used for the purposes of pastoral pursuits, other than (inter alia) structural improvements used for domestic or residential purposes except where the improvements are provided for the accommodation of employees, tenants or sharefarmers engaged in or in connexion with those pursuits. But units of property in respect of which depreciation is allowable under s. 54 qualify under s. 57 AB for a special and more ample depreciation allowance than otherwise would apply to them if they fulfil either of two descriptions. They must be either (a) structural improvements situated on land in the Northern Territory used during the year of income for the purposes of agricultural or pastoral pursuits and completed after 30th January 1952 or (b) not structural improvements but, during the year of income, used for the purposes of agricultural or pastoral pursuits in the Northern Territory, or installed ready for use for those purposes, and either first used by the taxpayer for the purpose of producing assessable income, or first installed ready for use for that purpose, after 30th June 1952. This provision does not apply to motor vehicles designed primarily and principally for the transport of persons. (at p339)

In the relevant year of income and for some years before that, the appellant held under pastoral lease from the Crown a grazing property of more than 2,000 square miles called Helen Springs, which lies on the Stuart Highway some 90 miles north of Tennant Creek, in the Northern Territory. The appellant was closely associated (though the connexion has not been precisely proved) with a number of other companies. Some held individual cattle stations and employed a working manager and staff for each, subject to the overall management of other companies in the group. Companies whose properties were in Queensland were under the general management of Western Grazing Co. Pty. Ltd. (which owned station properties itself), while those whose properties were in the Northern Territory or the Kimberleys were under Australian Investment Agency Pty. Ltd., a Company in which all the shares were owned by Western Grazing Co. Pty. Ltd. These two managing companies in co-operation decided from time to time the movements of cattle from one property to another and ultimately to a company, belonging to the group, called Central Queensland Meat Export Co. Pty. Ltd., which owned a meat works as well as cattle stations. The function of the companies which, like the appellant, were only owners of station properties (according to a witness Mr. Morris whose evidence as a whole I accept) was to look after their individual stations, to rear and fatten cattle bred or reared by Central Queensland Meat Export Co. Pty. Ltd., and to bring them to the latter's meat works as and when required. In the relevant year the appellant's property, Helen Springs, was used solely for the agistment of cattle belonging either to the Central Queensland Meat Export Co. Pty. Ltd. or to the Western Grazing Co. Pty. Ltd. It owned no stock of its own, except horses used for working the property. There the cattle were fattened and then sent either to other stations belonging to companies in the group for further fattening or directly to the meat works.

Almost all went ultimately to the Central Queensland Meat Export Co. Pty. Ltd. Until 1957 they had to be walked to the railhead at Mount Isa in Queensland; but this was a lengthy and costly business, and the condition of the beasts often deteriorated so much on the way that they had to be fattened again on Queensland stations before proceeding to the meat works. (at p340)

In 1957 the directors of the appellant company and the directors of the Central Queensland Meat Export Co. Pty. Ltd. together decided upon an experiment directed to obviating these disadvantages. They decided that the appellant company should acquire two road trains, each consisting of a prime mover and several trailers, and should erect on Helen Springs station some buildings, consisting of manager's quarters, staff quarters, garage, workshop and store, for use as a base for the road trains. They further decided that the Central Queensland Meat Export Co. Pty. Ltd. should have the use of the trains and the base. They departed from this decision in one respect: in order to isolate the costs of the experiment, a company called Norther Cattle Transport Co. Pty. Ltd. was formed, the whole of the issued shares being held by Central Queensland Meat Export Co. Pty. Ltd., and when the road trains were purchased by the appellant company they were hired to this newly-formed company at a fee, and it was the new company that used them. That company was also given by the appellant a lease of the road train base at a rental equal to depreciation and insurance. It was not until 31st October 1957 that the road trains were ready for use. In the ensuing year the hire of the road trains amounted to 13,107 pounds, and the rental (as it is called) of the base buildings was 6,389 pounds. (at p340)

I shall consider first the road trains themselves. They were owned by the appellant and were used by it during the relevant year of income for the purpose of producing assessable income, namely the hire charges paid for their use by the Northern Cattle Transport Co. Pty. Ltd. There is no dispute that they were "plant". They were therefore units of property in respect of which depreciation is allowable to the taxpayer under s. 54. They were first used by the appellant for the purpose of producing assessable income after 30th June 1952. This means that the question whether s. 57AB applies to them depends upon a single inquiry: whether, during the year of income, they were used for the purposes of pastoral pursuits in the Northern Territory. Since the use referred to in the section is not limited to use by the taxpayer it is enough if they were so used by the Northern Cattle Transport Co. Pty. Ltd. (at p340)

The argument addressed to me on behalf of the Commissioner was, in effect, that the road trains were used for the separate transportation activities of the lastmentioned company, that those activities formed no part of anyone's pastoral pursuits, and that therefore the case is outside s. 57AB. No doubt such an argument should succeed in a case where the transportation company is in a practical sense conducting an independent business of its own. But in the circumstances of the present case it seems to me that a comprehensive view ought to be taken of the total business enterprise that was being carried on in the Northern Territory by all the companies that were associated together in what Mr. Helsham called the management complex. It seems to me that until the road trains were acquired the process of droving the cattle from Helen Springs to the railhead at Mount Isa was simply the culminating stage of an activity which as a whole was a pastoral pursuit. The breeding, rearing and fattening of the cattle did not constitute the whole of that pursuit. The cattle had to be got in one way or another from station to station and ultimately to the railhead. The Commissioner's submission is, in effect, that when the stock left Helen Springs, at least in a case where their immediate destination was the meatworks and not another pastoral property, pastoral pursuits, so far as those cattle are concerned, were over. Indeed the submission goes a little further. It limits pastoral purposes to the raising, breeding and rearing of livestock, so that even the loading of them onto vehicles while still on a pastoral property, for the purpose of their being transported to market or to a railhead, could never form part of pastoral pursuits. This seems to me too narrow a view. If it is the pastoralist himself who moves the cattle, doing so as an integral part of the carrying on of his pastoral business, I see nothing in the normal sense of the expression "pastoral purposes" to exclude that movement from its ambit.

Clearly, I should have thought, the droving of Helen Springs cattle to Mount Isa was properly to be described as done for the purposes of pastoral pursuits. If so, why is not the use of motor transport in place of droving equally to be so described? It was done by a different corporate entity, Northern Cattle Transport Co. Pty. Ltd., but still as part of the one process the component parts of which were each performed by whichever company in the group it was found convenient to use. I see no more reason in this case for treating the separate corporate existence of the associated companies as decisive than there was in Apthorpe v. Peter Schoenhofen Brewing Co. Ltd. (1899) 80 LT 395 The question in the case is essentially practical. I take it to be whether the use to which the road trains were put was a use in the course and for the furtherance of pastoral pursuits. If it had been for the purposes of pursuits disjoined from the breeding, rearing and fattening of cattle my answer would be, No. But where, as here, transportation by means of road trains to a railhead is an ancillary but integral part of a process being carried on as a whole of which the breeding, rearing and fattening of cattle are earlier stages, I think the answer should be, Yes. And I do not think that it makes any difference to this essentially practical question that separate corporations perform the several steps in that process, provided that their relation to one another is such that the process really is, in a business sense, carried on as a whole. (at p342)

Then as to the structural improvements constituting the road train base. They were owned by the appellant and used by it during the relevant year of income for the purpose of producing assessable income, namely the rental. No point is made by the Commissioner as to their having been used for domestic or residential purposes, no doubt because he concedes that they were leased to a tenant. The question to be considered, then, is whether in the relevant income year the road train base was on land which was used for the purposes of pastoral pursuits. Only if they were would they be "plant" in respect of which depreciation would be allowable under s. 54 (2) (b). The manager's quarters were used to house a person who in addition to being the manager of the road train acted in slack times as a mechanic for the station's ordinary vehicles. The staff quarters were used for a part-time bookkeeper, a fitter, a handyman, a cook and five drivers. The garage was used for the trains themselves, and the workshop and store were used in connexion therewith. These buildings were adjacent to yards, a holding paddock and an overnight paddock in which cattle could be held to await the road trains, and a loading ramp. By the erection of the road train base and its application to the uses described, Helen Springs station was equipped for the despatch of cattle by road train, and for the management, staffing and servicing of the road trains themselves. It seems to me that the whole of Helen Springs station was used for the purposes of pastoral pursuits, no less after than before the erection of the road train base. The erection of the base did not carve out a part of the station property and apply it to purposes different from the overall purposes of the property. The maintenance of the base on the property thereafter was, in my opinion, merely a part of the means by which the appellant continued to use the whole property for pastoral pursuits.

Even if the actual site of each building were to be considered by itself as being the land on which the building was situated, the reasons I have given in relation to the road trains would lead me to conclude that the base was situated on property in the Northern Territory used during the year of income for the purposes of the pastoral pursuits of the group of companies to which the appellant belongs. On either view the case falls within both s. 54 and s. 57AB (1) (a). (at p343)

In my opinion the appeals should be allowed and the amended assessment remitted to the Commissioner in order that he may make a further amendment of the assessment by giving effect to the objections dated respectively 30th May 1960 and 9th December 1960. (at p343)