Federal Commissioner of Taxation v. Ballarat & Western Victoria T.V. Limited.
Judges:Jenkinson J
Court:
Supreme Court of Victoria
Jenkinson J.: Appeals by the Commissioner of Taxation against decisions of a Board of Review.
The respondent has at relevant times carried on a business of operating a commercial television station and the questions in these appeals arise out of the use by the respondent, for the purpose of transmitting television signals, of three metal towers which are called masts. (See sec. 110 of the Broadcasting and Television Act 1942 for an example of that usage of the word.) During the period with which these appeals are concerned the Postmaster-General was authorised by the Broadcasting and Television Act 1942 to provide and to operate facilities for the transmission of the television programmes of the Australian Broadcasting Commission. The Postmaster-General entered into arrangements with the respondent under which the masts, which are facilities adjunctive to television transmitting and translator stations, should be used both by him in transmitting television programmes of the Australian Broadcasting Commission and by the respondent for transmitting its television programmes. The appeals are concerned with certain payments made by the respondent to the Postmaster-General in performance of those
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arrangements. The payments were outgoings incurred in gaining the assessable income of the respondent. The Commissioner contends, but the respondent denies, that to an extent quantified in the relevant amended assessments each payment was an outgoing of capital, or of a capital nature.The mast which was first made the subject of an arrangement between the Postmaster-General and the respondent was erected at Lookout Hill, near Ballarat, on land owned by the Crown in right of the State of Victoria. As from 1st July 1964 the Commonwealth of Australia has held the land, under a lease for a term of 21 years, from the Forests Commission, by which a permissive occupancy licence had been granted to the Commonwealth when erection of the mast was proposed several years before 1964. The respondent's television station stands on land adjacent to that which is the subject of the demise to the Commonwealth by the Forests Commission, from which the respondent also holds its land for a similar term. The respondent's signals ascend the mast by cable from its station. Commercial transmission by the respondent began on 27th April 1962, from equipment on top of the mast.
Oral evidence was not adduced on behalf of either party to the appeal. The evidentiary material included, by agreement between them, a statement of facts. In that statement it was asserted that the arrangements concerning use of the masts were contained in identified correspondence. What is described in the statement of facts as ``the correspondence relating specifically to Lookout Hill'' is contained in the following letters:
Letter dated 17th May 1961 from the Director-General of Posts and Telegraphs to the respondent: -
``Gentlemen,
Referring to your letter of the 13th April, 1961, the Department has taken steps to invite tenders for the co-masted structure at the Ballarat site. This public tender will be invited on Friday, the 26th May. The tender will be open for five weeks which appears to be the minimum period acceptable to local manufacturers.
As soon as tenders have been received discussions will be conducted with your officers with a view to placing an order as early as possible.
The Department is prepared to agree to: -
- (a) your company placing the order for the mast with a firm to be mutually agreed on and at a price and with conditions also to be mutually agreed on between the Department and yourselves, or
- (b) this Department placing the order for the mast with the same conditions.
In the event that the latter course is followed, the Department would be agreeable to the following conditions: -
1. The Department would impose annual charges on the company for the use of the facilities. These charges would recover 50% of the total capital outlay incurred by the Department for the mast structure within a period of 8 years by means of half-yearly payments of £1,000, including interest charged at a rate of 6%. The company is to furnish a bond or other security at a level, estimated at this stage to be £12,500, which is reduced progressively as rental payments are made.
2. The sharing agreement may only be terminated if this is agreed to by both parties. In that case, a rebate would be made to the company of the difference between the normal charges at the time of termination (at standard interest and depreciation rates based upon the full useful life) on half the structure and the amount actually paid in rental by the company, less the excess costs of providing special features for co-masting.
3. The Department and the company would each be responsible for the installation and maintenance of their respective aerials and transmission lines, except that when any heavy lifting on the mast is required by the company, this shall be carried out by the Department at the company's expense.
4. The company would have the right of access to the mast and aerial structure by responsible staff at all times.
5. It would be necessary for the Department and the company to indemnify each other mutually against all
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damages or claims resulting from the installation, operation or maintenance of the aerial system on the structure.6. In the event of the structure being damaged owing to negligence on the part of the Department or its officers, the Department would undertake to re-establish the facility as rapidly as possible and at its own expense.
7. The Department would make every endeavour to provide the structure in time for the company to commence operations by Easter 1962, but cannot undertake to pay compensation if this date cannot be achieved. After carefully considering the mast construction programme in the past few weeks in the light of the proposed overall construction programme for the 13 national stations in Phase 3, it is now estimated that the mast at Mt. Lookout would not be completed before the end of March, 1962. The target date which this Department would endeavour to meet is, therefore, 1st April, 1962, but no guarantee can be given that this date can, in fact, be achieved, as it is dependent on a number of factors outside the control of this Department, such as the supply of structural steel.
8. The technical details of the structure, particularly aerial heights, will be in accordance with the Broadcasting Control Board's requirements.
9. A guyed mast will be used.
In the event that it is mutually agreed that your company should order the mast, the Department would be agreeable to the same general conditions as the foregoing but in this case, of course, the half-yearly payments would be made by the Department to your company. Alternatively, the Department would consider other alternative arrangements which you may put forward. For example, you might prefer to own the entire structure and rent the antenna to the Department for an annual rental which would include maintenance etc. by your staff.
If you prefer the alternative method under which your company would provide the mast, the Department has no objection to cancelling the proposed tender arrangements, but in the light of information available to us it is felt that the methods we propose to follow will result in the earliest possible supply of a suitable structure.
Yours faithfully,
F.P. O'Grady,
for M.R.C. Stradwick,
Director-General.''
Letter dated 30th May 1961 to the Director-General of Posts and Telegraphs from the general manager of the respondent.
``Dear Sir,
We thank you for your letter of the 17th inst., reference G323/1/105 regarding the co-masted structure to be erected at transmitter site, Lookout Hill.
The Directors of this Company have given consideration to the proposals set out therein and have decided to accept alternative (b), whereby your Department will order the mast and supervise its erection. It is of paramount importance to this Company to have the installation completed not later than 1st April, 1962; we seek, and know we can expect complete co-operation from your Department to meet this target date.
The conditions set out in your letter are generally acceptable, however, we would direct your attention to the following matters: -
1. It is understood that the proposed rental of £2,000 per annum is based on the final tender price amounting to £25,000; precise rental will be determined when the successful tenderer's price is known, based on the formula set out in your letter. The Company is willing to accept these terms and is prepared in due course to furnish a bond to cover unpaid rental charges.
2. In addition to the rental payment, the Company agrees to contribute an annual sum representing one-half cost of maintenance. It is suggested that such be paid in half-yearly instalments with the rental. The figure of £150 per annum has been mentioned to us as being reasonable. Later advice however, indicates that the position is being further investigated, and if as a result, a higher charge is
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contemplated, we would be glad if you will inform us thereof.3. It is suggested that both rental and maintenance charges commence from the day the mast is completed and ready for the installation of the Company's antenna.
4. Negotiations conducted thus far have been on the basis that after the initial period of eight years, the Company will have the right to continue using the mast during its lifetime at a nominal rental, (we suggest £1 per annum), but subject to revision of the maintenance charge which is to be mutually agreed upon. We presume this condition still applies.
5. The commercial television licence granted to the company is for an initial period of five years. We recommend that if the licence is not renewed after its initial term, arrangements made between us should be automatically terminated and rebate calculated in terms of Clause 2 of your letter be made by the Department upon the Company making a request therefor in writing.
6. The position which would arise in the event of total loss of the facility has not been considered, and we would be pleased to receive your proposals to cover such an eventuality.
If required, the writer will be pleased to discuss the foregoing with your Officers at any time mutually convenient. Meanwhile, it is understood that the Department is proceeding with plans to erect the co-master structure so that the timetable can be adhered to.
Yours faithfully,
B.F. Jackson,
General Manager.''
Letter dated 28th July 1961 from the Director-General of Posts and Telegraphs to the general manager of the respondent: -
``Dear Sir,
Further to your letter of the 30th May, 1961, and following recent discussions with officers of this Department, it is understood that the conditions outlined under which your Company may share the proposed co-masted structure at the Ballarat site are acceptable to the Company.
To re-iterate, these conditions are as follows: -
(i) The Department will impose annual charges on the Company for the use of the facility. These charges would recover 50 per cent of the total capital outlay incurred by the Department for the mast structure within a period of eight years by means of half-yearly payments (in advance). These payments will include a component of interest charged at the rate of six per cent, and based on the capital cost of the structure being £25,000 would be of the order of £1,000 each half-year. The Company is to furnish a bond at a level representing, at the outset, 50 per cent of the total capital outlay, which may be reduced progressively as rental payments are made.
(ii) The total capital outlay shall represent the actual cost to the Department of having the structure erected on the site, plus an administration loading of two per cent to cover inspections, overhead, etc.
(iii) In addition to the above rental payment, an annual sum of £200 will be charged to cover the cost of maintenance of the structure. This assessment is based on current wage levels and is subject to variation, up or down, in accordance with variations in these levels from time to time.
(iv) The above fee of £200 per annum also covers the Company in the event of collapse or other failure of the structure, to the extent that the department will, at its own expense, reinstate the structure. It does not, however, cover damage caused to buildings or equipment owned by the Company as a result of such collapse or failure of the structure nor `loss of profits' which may be incurred, and the Company is advised to seek such cover privately.
(v) The rental and maintenance charges shall commence from the day the mast is completed and ready for the installation of the Company's antenna, and the capital cost mentioned in condition 2 shall include a component of accumulated interest charges at that stage.
(vi) At the termination of the period of
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eight years (i.e. after 16 rental payments) the Company will have the right to continue using the mast during its lifetime, and the only payment required will be the maintenance fee mentioned in condition 3. The arrangement will continue until such time as the structure is replaced subject to the following conditions, (vii) and (viii).(vii) The sharing arrangement may only be terminated during the life of the structure if this is agreed to by both parties. In that case, a rebate would be made to the company of the difference between the normal charges at the time of termination (at standard interest and depreciation rates based upon the full useful life) on half the structure and the amount actually paid in rental by the Company, less the excess costs originally incurred by the Department in providing for special features for co-masting.
(viii) This termination will also be granted in the event of the Company failing to obtain a renewal of its licence after the initial term of five years.
(ix) The Department and the Company would each be responsible for the installation and maintenance of their respective aerials and transmission lines, except that when any heavy lifting on the mast or any alterations to the mast structure occasioned by aerial repairs or modifications are required by the Company, these shall be carried out by the Department at the Company's expense.
(x) The Company would have the right of access to the mast and aerial structure by responsible staff at all times.
(xi) It would be necessary for the Department and the Company to indemnify each other mutually against all damages or claims resulting from the installation, operation or maintenance of the aerial systems on the structure.
(xii) In the event of the structure being damaged owing to negligence on the part of the Department or its officers, the Department would undertake to re-establish the facility as rapidly as possible and its own expense. In the event of such damage being occasioned by the Company or its officers, the cost of re-establishment will be charged to the Company.
It is felt that the above re-statement of the conditions covers the points raised in your letter, and as intimated at the discussion on Wednesday, 19th July, if you agree it would be appreciated if these conditions were formally submitted to the Department in a form acceptable to the Company. It is suggested the actual level of payments can be assessed at a later date, provision being made accordingly in the draft agreement at this stage.
In the meantime as it is understood that the technical specifications and price tendered by Ascom Pty. Ltd. are likewise acceptable to the Company, an interim notification to this effect might please be forwarded in order that action can be commenced to place an order for the co-masted structure.
Yours faithfully,
F.P. O'Grady (signed)
Director-General''
Letter dated 30th November 1962 from the Director-General Posts and Telegraphs to the general manager of the respondent: -
``Dear Mr. Jackson,
As discussed with you last Monday, there are a number of matters regarding the co-masting arrangements on which further information is to hand. These relate to the progress of the agreement itself and to the final costs of the shared mast.
So far as the agreement is concerned, it is still not possible to say when we will be in a position to bring this to finality. As you know, there are at present some complications concerning leasehold or licence arrangements to cover our tenancy on the land. The Deputy Crown Solicitor has informed us that it would be preferable to obtain a leasehold to cover a period of 12 years, which, we understand, is the maximum period which can be granted under the Forests Act. Until this matter is settled he is not willing to move in finalising the agreement. At the same time, however, he is prepared to look more closely at the terms of the agreement
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so that when the leasehold position is clear no undue delays in the settlement of the agreement will eventuate.So far as your capital contribution to the cost of the shared mast is concerned, we now have available final costs on which a firm assessment can be made. There has been an increase in the total cost from that discussed with you from time to time over the past few months. In line with the definition of the total capital outlay outlined in our letter of the 28th July, 1961, and agreed by you in the letter of the 1st August, 1961, the total cost, inclusive of administration loading, is £32,214. Your shared capital contribution will now be £16,107.
A second point concerning the repayment is that in previous discussions with you, your assessed half yearly capital repayments included a rate of interest of 6%. It has now been established that the rate applicable will be 5%, which is based on the long term bond rate current over the period in which the expenditure was incurred.
The now firm half yearly capital repayment, based on the above adjustments and applicable over a period of eight years, is £1,204. The annual maintenance fee of £200 remains unchanged as agreed.
In the light of a firm cost assessment it will be necessary for an adjustment to be effected for the first six monthly payment which you have made. It will be necessary for an amount of £144 to be paid, representing the difference between the £1,060 paid as the first half yearly rental to the 5th September, 1962, and the £1,204 now assessed. There is also a matter, to which you had agreed, of payment of accumulated interest up to the period when the capital repayments would commence; this amounts to £25.
As your repayment for the six months ended the 5th March, 1963, is now due, it would be appreciated if a cheque for an amount of £1,473, payable to the `Postmaster-General's Department', is forwarded by the 7th December, 1962, to the Assistant Director-General, Finance and General Services Division, Postmaster-General's Department, Treasury Place, Melbourne, C.2. This amount covers: -
- (i) The adjustment to the first half yearly repayment - £144
- (ii) Back payment of accumulated interest - £25
- (iii) Capital repayment for the second six months ended 5th March, 1963 - £1,204
- (iv) Half yearly maintenance in advance - £100
Although I feel that we covered the position fairly thoroughly last Monday and there are no major issues on the repayment aspect still to be resolved, if there should be any further matters regarding the final cost of the co-masted structure which you would like to discuss I would be happy to hear from you. On the matter of the agreement you can be assured that I will let you know any further developments as soon as they come to hand as we too would like to bring the matter to finality as quickly as possible.
Yours faithfully,
F.P. O'Grady,
Director-General.''
Letter dated 11th December 1962 from the general manager of the respondent to the Director-General of Posts and Telegraphs: -
``Dear Mr. O'Grady,
Many thanks for your letter dated 30th ultimo outlining the latest position regarding Co-masting arrangements. The visit recently paid by two officers of your Department who conveyed further details to me first-hand was much appreciated.
The legal difficulty regarding preparation of the Agreement is readily understood. We too are making representation to the Forests Commission of Victoria so that our leasehold extends for a period of 12 years. At this stage the Commission has granted us a Licence for a period of 12 months only, and having regard to the fact that we have invested in excess of £140,000 in buildings, plant and equipment at the site at Lookout Hill, we do not consider this as being sufficient security of tenure.
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Until the matter is resolved we are happy to allow the correspondence which has passed between us to form the basis of arrangements made. Financial details as set out in your letter, and from which we note that the fixed half-yearly rental of the mast will in future be £1,204, are satisfactory.
We have forwarded our cheque for an amount of £1,473 as requested to the Assistant Director-General, Finance and General Services Division.
Yours sincerely,
R.F. Jackson
GENERAL MANAGER''
Performance of the agreement made by that correspondence has continued, but the formal agreement which is contemplated in the letters dated 30th November 1962 and 11th December 1962 has not been made.
In respect of the year of income ended 30th June 1967, to which the first of these two appeals relates, the respondent claimed to deduct from its assessable income the two half-yearly payments of $2,408 which were made by it during that year of income in performance of the agreement expressed in the correspondence, together with a further $26 which the parties have treated as an adjustment in respect of a previous deficiency in a half-yearly payment. A similar deduction, of $4,816, was claimed in respect of the other year under consideration, which ended on 30th June 1969. Of the deductions claimed the Commissioner allowed only so much as he considered apportionable to interest on the sum of £16,107 specified in the third paragraph of the letter dated 30th November 1962. The submission made by Mr. J.D. Phillips Q.C., who appeared with Mr. N. Webb for the Commissioner, was that the amounts disallowed were outgoings of capital, or of a capital nature, being instalments of the price agreed to be paid for the right to use the mast throughout the period of its life. For the respondent it was contended by Mr. Hulme Q.C., who appeared with Mr. North, that the payments for which deduction had been claimed were ordinary business outgoings on account of revenue, being in respect of each year of income the amounts payable for the right to use the mast during the year in which the payments were made.
The agreed statement of facts includes the sentence: ``The life of the masts is expected to be in the order of 40 years.'' There is no other evidence concerning the durability of the structures, except the evidence that they are still being used by the respondent.
The legal rights obtained by the respondent under the agreement which is evidenced in the correspondence quoted include those conferred by the Postmaster-General's promise to permit the respondent to use the mast as the support of certain television transmission equipment (in the correspondence called ``antenna'', ``their respective aerials and transmission lines'', ``aerial structure'', ``aerial systems'') ``during the life of the structure''. It is not possible to determine from the correspondence what period the parties to the agreement had in contemplation, at the time the agreement was made, as the life of the structure, nor whether they shared a belief as to the means by which to determine when that life had ended or ought to be regarded as at an end. The sentence I have quoted from the agreed statement of facts expresses the expectations of the parties to the appeal at the time of the hearing of the appeal. It might, I think, be inferred from the fact that the Postmaster-General promised to reinstate the structure at his own expense ``in the event of collapse or other failure'' that the parties to the agreement conceived the structure to have an expected life, before the expiration of which collapse or other failure might unexpectedly occur. The correspondence includes a reference to ``the full useful life'' and to ``the lifetime'' of the mast. It seems safe to infer that they thought the mast would probably endure as a safe and useful structure on Lookout Hill for many more than eight years.
Mr. Hulme pointed out that the right which the Postmaster-General's promise conferred was merely to use the structure in a particular way and that no proprietary interest in the mast or the materials of which it was constructed was vested in the respondent or brought within the respondent's capacity to acquire. To the contention by Mr. Phillips that the right to use the mast throughout its life as a mast was
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an asset or advantage of a lasting character Mr. Hulme replied that the right to use a building or other structure which a lease of land for a term of years may confer is no less enduring a benefit to the lessee in his trade, who yet yields periodic rent for that benefit on revenue account.Some of the terms of the correspondence invite a conception of the respondent's right to use the mast as analogous to the right of a lessee of land or a bailee of a chattel to possession of the subject matter of the lease or of the bailment. The analogy with a lease is facilitated by the circumstances that the use which the Postmaster-General promises to permit is of the mast in the place in which it is first erected, not in such places as might from time to time be selected, and by the circumstance that all proprietary interests in the mast are vested either in the grantor of the respondent's right or in the owner of the land which supports the mast. The analogy may, however, be unhelpful in determining whether the outlay made for the respondent's right to use the mast ought to be characterised as an outgoing of a capital nature. Unlike a lease for a term, this agreement expressly confers on the respondent a right to use the subject of the right until it shall cease to be capable of use as that which in a commercial sense it is. It may be that the mast could - by the application of contemporary technology - be moved to another site and there put to use, either as a television transmission facility or in some other way, and that the mast in consequence has a value independent of its situation on Lookout Hill and of the scrap value of the materials out of which it was made. The agreement between the respondent and the Postmaster-General confers on the respondent no interest in the mast of a kind which would enable the respondent to have any benefit of those values and the Postmaster-General (or, perhaps, the Commonwealth, or the State of Victoria) retains at all times the proprietary rights in which those values inhere. But the Postmaster-General's promise has placed him under the obligation to confine the situation of the mast throughout its life to Lookout Hill. From a practical and business point of view what the making of the agreement effected was the assurance to the appellant of the use of the mast for the whole of its life as that which it was designed and erected to be: a part of the television transmission plant established on Lookout Hill for the transmission of the respondent's programmes. (It is not the less that because it is also property of the Postmaster-General and was designed and erected to be part of the plant established on Lookout Hill for the transmission of the programmes of the Australian Broadcasting Commission.) Juristic classification of the legal rights secured by the respondent - as contractual or proprietary for example - is no doubt necessarily involved in identifying the nature and the extent and the modes of enjoyment of the advantage which the respondent's outlay of money is calculated to gain for it. When that determination has been achieved, regard may then in my opinion be had to practical business considerations in determining whether what has been obtained is in truth and in substance a capital asset; and I think that juristic distinctions between ownership and the interest of a licensee, or between a term of years and a period determined by the physical ``life'' of a structure, or between a power to use the structure only for a particular purpose and a power to use it in any way (even to destroy it at will), may legitimately be accorded more or less significance in that second determination as the legal distinction is found to be more or less relevant, from a practical and business point of view, to the distinction between acquisition of the means of production and use of them in the process of operating the ``profit-earning subject'':
Sun Newspapers Ltd. & Anor. v. F.C. of T. (1938) 61 C.L.R. 337 at 359-363;
Hallstroms Pty. Ltd. v. F.C. of T. (1946) 72 C.L.R. 634 at 646-649;
Colonial Mutual Life Assurance Society Ltd. v. F.C. of T. (1953) 89 C.L.R. 428 at 453-457;
F.C. of T. v. South Australian Battery Makers Pty. Ltd. 78 ATC 4412 at 4418-4421. I find little to weigh against the conclusion that the respondent's rights under the agreement secured for it a capital asset in the circumstances that those rights are not of a proprietary kind and that they are merely to use the mast in a particular way at a particular place. Nor do I think it is a conclusion invalidated by the fact, which Mr. Hulme asserted to be certain, that accountants would not treat the respondent's rights as an asset in the respondent's balance sheet. The temporal measure of the rights (by
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the ``life'' of the mast) supports that conclusion, in my opinion.It is, however, the expenditure disallowed, rather than the mast, with which sec. 51(1) of the Income Tax Assessment Act 1936 is concerned.
The expenditure for which deduction was claimed was in Mr. Hulme's submission made for the right to use the mast during the annual periods to which the payments respectively related. So much he said was plainly asserted to be the agreement of the parties in their correspondence. But there are also assertions in the correspondence that the payments are ``capital repayments'' and that they are, in aggregate, ``capital contribution to the cost of the shared mast''. In
Commrs. of I.R. v. Church Commissioners for England (1976) 50 T.C. 516 at 537, 540, Megarry J. observed: ``Again, I think that the mere existence of a capital sum of money in the minds of either, or both, of the parties must be contrasted with the actual existence of a capital obligation. As a matter of valuation, all capital can be expressed in terms of income and all income can be expressed in terms of capital.... I cannot attach any great weight to the question whether, without there being any obligation to pay a capital sum, such a sum appears in some way on the face of the transaction or can, by due diligence, be detected in it. I cannot see why the bare inoperative mention of a capital sum should affect the nature of what is being paid under the contractual obligation.... The nature of the payments will normally not be affected by the existence of any capital of acquisition, of calculation or of intention; and similarly as to the corresponding income equivalents. If, during the negotiations, any such equivalents came into existence, expressing capital in terms of income or vice versa, they will normally have no effect unless, of course, they play such a part in the transaction as to affect its true nature or demonstrate that the transaction is a sham or is using false labels.'' A ``label'' may be accorded slight influence when it is a mere declaratory flourish, as in
Racecourse Betting Control Board v. Wild (1938) 22 T.C. 182, or when it is in contradiction of the legal effect of other provisions of the instrument in which it is used, as in Wild's case and in
Ainley v. Edens (1935) 19 T.C. 303. But the mode in which expression is given to an obligation to make periodic payments may be decisive of the question whether the payments are made on revenue or capital account, when the advantage in consideration of which the payments are made can be secured in law either by a single price or by a series of payments for a succession of periods: see Sun Newspapers Ltd. & Anor. v. F.C. of T. (1938) 61 C.L.R. 337 at 363;
Commrs. of I.R. v. Adam (1928) S.C. 738; 14 T.C. 34;
Ogden v. Medway Cinemas Ltd. (1934) 18 T.C. 691 at 695;
Green v. Favourite Cinemas Ltd. (1930) 14 T.C. 390 at 394.
My reluctance to allow forms of expression in the correspondence between the Postmaster-General and the respondent a determinative influence is caused in part by the contradictions in the correspondence between expressions such as ``annual charges for the use of the facility'' and expressions such as ``half yearly capital repayment''. It would not be impossible to regard the former class of expression as definitive of the contractual obligation created and to treat the latter class as signifying what Megarry J. succinctly called ``capital of acquisition, of calculation or of intention''. But the parties to the contract were not communicating by their lawyers, nor were the rights and obligations with which they were dealing within those long established legal categories to which common legal words and phrases have been conventionally assigned in such a way as to assure certainty of legal effect to those words and phrases. Form may well determine substance when form has found unequivocal expression, but that is not in my opinion the case here. I think that this correspondence yields a correct understanding of its legal effect when expressions redolent of legal categories are less regarded than those passages which express what it is that each party will get and will give.
A contractual right to use the structure as a mast on Lookout Hill is assured to the respondent for so long as the structure is physically adequate for such use. The parties to the agreement may be supposed to have thought that to be an uncertain period, but to be substantially greater than eight years. The sums payable for that right to use the mast fall due at half-yearly intervals over eight years. The only other periodic payments are
ATC 4639
declared to be charged ``to cover the cost of the maintenance of the structure'', and to be variable in response to variations in the cost of labour, and each of them is declared to be one which ``also covers the Company in the event of collapse or other failure of the structure''. It is clearly established by statements in the correspondence that the aggregate of the 16 semi-annual payments is equal to half the cost of the structure with interest thereon at a specified rate over the period of eight years and that the mast is a ``co-masted structure''. The meaning of that expression to the parties is disclosed by the agreed statement of facts concerning use of the structure for television transmission by the Australian Broadcasting Commission. In my opinion the semi-annual payments are disclosed to be not for use of the structure for periods commensurate with those payments, but for use of the mast for the whole period of its physically useful life as a television mast.Mr. Hulme denied that the mere circumstance that payment for use of the structure was accelerated and completed (save for the annual maintenance payments, which he would have treated as part of the total consideration for use and maintenance) within eight years, rather than being spread over the whole period of use, could alter the revenue character of an outlay which in his submission gained no more than use from year to year, or of an outlay which gained no more than use for an indeterminate period. That submission I cannot wholly accept. It may be assumed that variation in amount of periodic rent or hiring charges during a leasehold term or an agreed period of bailment would not necessarily preclude characterisation of each payment of rent or hiring charge as an outgoing on revenue account. But in this case there is the further circumstance that all the payments for use of the mast were to be made within a period which would end long before use was expected to end. None of the payments is commensurate with a period of use, unless one or more of the expressions in the correspondence is accepted as evidencing agreement that the sum of each pair of half-yearly payments shall constitute the consideration for use of the mast during that year. I do not think that the correspondence does evidence such an agreement. And in my opinion comparison between the period within which the payments are to be made, with the period during which, it is to be inferred, the parties expected the right to use the mast to endure suggests what the stated bases of calculation of the payments confirm: that the payments are instalments of a price, and interest thereon, for the right to use the mast for the whole of its life, not hire or rent for use during the first eight years or during a longer indeterminate period.
It cannot in my opinion be said that the provisions of the agreement for ``rebate'' to the respondent in the event of a premature termination of the respondent's right to use the mast, by consensual rescission of the agreement, are designed to proportion the expense required of the respondent for use of the mast to the length of the period during which use is in fact enjoyed. That could be said if those provisions were construed as directing subtraction of the aggregate of ``the normal charges'' which would have been paid from the aggregate of the half-yearly charges in fact paid, and if it were shown that the rebate would diminish to zero just before the expiration of the ``full useful life'' which the parties to the agreement expected the mast to have. But if the expectation of those parties as to the life of the mast, at the time they made the agreement, was in substantial accord with the expectation of the respondent and the Commissioner which the agreed statement of facts records (and there is no evidence which suggests the contrary), the parties to the agreement must have contemplated that the rebate would diminish to zero long before the expiration of that life. No more can in my opinion be said of those provisions for a rebate, or of the provision for rebate in the event that the respondent's initial licence to transmit television programmes were not renewed, than that they are designed to shield the respondent from a financial disadvantage which termination of its use of the mast a long time before the expiration of the structure's useful life would have entailed.
My conclusion is that the half-yearly payments in respect of the mast on Lookout Hill were instalments of the price of a capital asset acquired by the respondent and of interest on that price; and that those instalments were to an extent outgoings of a capital nature. The respondent did not
ATC 4640
contend, nor do I think that the Commissioner was in error in his apportionment of the payments between capital and revenue account, if the conclusion that they were to some extent of a capital nature be correct.The expression ``television translator station'' is defined in sec. 4(1) of the Broadcasting and Television Act 1942 to mean ``a station for the transmission by means of wireless telegraphy of television programmes being a station of low operating power and designed to receive and retransmit signals from a television station or from another television translator station without substantially altering any characteristic of the signals other than their frequencies and amplitudes.''
It is asserted in the agreed statement of facts that a mast at Tower Hill in the Warrnambool area was used by the respondent ``in conjunction with a translator'', that ``this translator station became operational on 30th May 1966'', and that ``the relevant correspondent is a letter dated 28th July 1966''. That letter reads: -
T.A. Beasley Esq.,
Director-General,
Postmaster-General's Department,
Treasury Place,
MELBOURNE. Vic.
Dear Sir,
Translator - Tower Hill
We refer to previous correspondence and discussions with officers of your Department relative to the above; set out hereunder are terms and conditions to apply to the Company's use of common facilities as we understand them: -
(1) It has been agreed that total cost upon which rental will be based is $19,960 made up as follows: -
Mast $12,800
Building 2,515
Land 250
Common Equipment 1,218
Spares 375
Fence, Road, Beautification 468
-------
17,626
Administrative charge/
Interest 2,334
-------
$19,960
-------
Rental shall amount to $2,328 for the first three months, thereafter $928 per quarter for 19 quarters. Test pattern commenced on 30th May, 1966, and rental payments shall begin on that rate.
(2) At date hereof, spares are not to hand, neither have fence, road and beautification works been completed. Costs quoted have been accepted on the understanding that those matters will be attended to at an early date.
(3) At termination of period mentioned in paragraph (1), the Company shall have the right to continue using the facilities named at a rental of $1.00 per annum provided that: -
(a) If during the term because of wear and tear it becomes necessary to replace the mast or building, annual rental shall be re-determined. In assessing such rental due regard will be paid to the manner in which rental was assessed for the initial term.
(b) There shall be a revision of maintenance charges, these to be mutually agreed upon by the parties.
(4) Authorised personnel of the Company shall have access at all times, and may enter the building and climb the mast for purpose of inspecting the Company's equipment.
(5) Maintenance of building, mast, and all equipment (including the Company's aerials) shall be undertaken by officers of the Postal Department.
The Company's proportion of cost of maintenance of Building and mast shall be one-half of the total cost to the Postal Department. An annual charge therefore is to be agreed upon by the parties; the Company will pay its share quarterly in advance commencing from 30th May, 1966.
Cost of equipment maintenance shall be wholly the responsibility of the Company until such time as the National translator commences transmission. Thereafter costs will be shared equally, apart from those associated with service to the Company's aerial system of for emergency calls to the Company's equipment for which it shall be wholly
ATC 4641
responsible. The Department will render a monthly account in these terms detailing labour, spares and other charges.After a ``settling in'' period, the Company envisages as adequate, the servicing of the equipment not more than once a month.
The Company reserves the right upon giving three months' notice in writing to terminate the arrangement to service its equipment and aerial.
(6) All charges for light and power shall be the responsibility of the Company until such time as the national translator commences transmission. Up to this point, the Postal Department shall render accounts therefor to the Company each month.
The Postal Department shall arrange for separate meters to be installed so that as from date of national translator transmission, each party will receive accounts from the State Electricity Commission in respect of current directly consumed.
A further meter will be installed to cover power and light used in common, and the Company will be liable for 50 per centum thereof, such to be billed by the Postal Department monthly.
(7) If during the term of this arrangement facilities shall be damaged or destroyed other than by reason of wear and tear, then: -
- (a) In the event of property owned by the Company being so affected, each shall be repaired or replaced solely at the discretion of, and cost to the Company.
- (b) In the event of any of the facilities named in Paragraph (1) hereof being so affected, the parties shall agree as to whether necessary repairs or replacement should be made. Upon obtaining agreement, the Postal Department shall expeditiously undertake the work necessary. The Company shall contribute as its share of cost a sum calculated in the following manner: -
Cost of Facility as per Para. (1) OF Cost of repairs or --------------------------------- [Total Original Cost of Facility] replacement
It would be appreciated if you will advise whether the foregoing is a correct interpretation of discussions which have taken place between us, and whether it is proposed to incorporate same in the form of an agreement. The Company does not consider this necessary.
Enclosed herein please find our cheque value $3,494 made up as follows: -
3 Months' Rent commencing
30th May, 1966 $2,328
Installation of equipment,
aerial, etc - Complete and
inclusive of all labour
and parts 1,100
Share Cost Sign Board 56
Auto Transformer 10
------
Your letter Ref. RG2/9/4. $3,494
------
Yours sincerely,
(sgnd.) B.F. Jackson
General Manager
The evidentiary material which the parties placed before the Court in the appeals did not identify any other correspondence relating to an agreement for use of the mast at Tower Hill; nor was any information disclosed about the discussions to which reference is made in the first sentence of the letter dated 28th July 1966. Concerning the sum of $2,328 the agreed statement of facts includes the following paragraph: -
``In relation to Tower Hill, the said letter from the taxpayer to the P.M.G. dated 28th July, 1966 refers to a payment of $2,328.00 for the first three months' payments to be `thereafter $928.00 per quarter for 19 quarters'. The total to be paid and described in that letter is $19,960. The first payment of $2,328.00 comprises the usual quarterly payment of $928.00 plus a further sum of $1,400.00. That further sum of $1,400.00 was certain additional cost incurred by the P.M.G. in constructing the mast, which cost, by agreement between the P.M.G. and the taxpayer, was to be paid forthwith by the
ATC 4642
taxpayer. In fact the payment of $1,400 was paid under cover of the said letter dated 28th July, 1966 and the payment was apportioned by the taxpayer as to $775 to the year ended 30th June, 1967.''
The respondent claimed to deduct from its assessable income of the year ended 30th June, 1967 an amount of $4,337 paid in performance of the agreement to which the letter dated 28th July, 1966 refers. The parties to the appeal were agreed that the sum claimed is the aggregate of $775 and four quarterly payments of $928. Of that sum the Commissioner allowed $474 as on account of interest and disallowed the balance. A similar course was taken by the Commissioner in his assessment with the claim which the respondent made for deduction of three quarterly payments of $928 in the year of income ended 30th June, 1969 to which the other appeal relates.
The third mast is part of translator facilities at Mt. Clay in the Portland area, the use of which for television transmission commenced on 13th September, 1968. Four letters are specified in the agreement statement of facts as ``the relevant correspondence''. I set them out.
Letter dated 16th July 1969 from the Director-General of Posts and Telegraphs to the managing director of the respondent.
323/1/301
16 Jul. 1969
``Dear Mr. Jackson,
I understand that the Mt. Clay translator station has been acquired by the Department of the Interior on behalf of the National Television Service. We can therefore proceed and conclude the financial aspects associated with sharing this site.
1. Site, Building, Roadworks, Power Line
The settlement price of $10,238 recouped your outlays on the site, building and roadworks together with the non-recoverable portion of the S.E.C. extension deposit for the erection of the power line to the station. As you know, the telephony service will use the foregoing facilities in the near future. Consequently, your contribution towards this establishment cost has been assessed at one-third of this amount (i.e. $3,413) instead of the one-half share stipulated in the official sharing document. This one-third share of cost also applies to the tower and power-line works. Your contribution towards the cost of the tower is $3,833. The power line works amounted to $4,800 and involved clearing of the power line route and the laying of underground power entrance cable. Your one-third share of this cost is $1,600.
2. Common Television Equipment and Facilities
The following facilities were provided by the National Television Service for joint use by the television portion and will not be shared with the telephony service. Your company will have to pay one-half of the outlays incurred and the amounts recorded below represent your share of the cost of the various items of common equipment.
$ Voltage regulator 475 Dehydrator 400 Test equipment 1,000 Common spares 625 Translator air treatment plant 750 3,252 ----- -----3. Terms Of Repayment
In February of this year, you requested that the repayment by your Company of the share of establishment costs at Mt. Clay, be spread over five years instead of the usual term of 10 years. This request is agreed with and you will have to repay a total amount of $12,096 by way of 10 equal half-yearly instalments of $1,396.36 each.
4. Dates Of Instalment Payments
The first instalment would have normally become payable on 13th March, 1969, six months after the opening date of your Portland station. However, in view that acquisition of the translator station from your Company was not completed until a short time ago, it is proposed that 1st January, 1969, be set as the commencement date of the repayment term. The first instalment therefore became payable on 30th June, 1969.
ATC 4643
5. Alarm Facility
The Post Office has provided two alarm circuits on the special single channel U.H.F. link between the translator station and the Portland telephone exchange and one of these alarm circuits has been linked to your translator. As the alarms automatically indicate the failure of translator equipment, translator outage time can be minimised. Your Company is requested to pay a nominal amount of $630 towards the cost of the facility. This amount is payable in a lump sum to the Post Office and is not part of the Governments translator sharing arrangements.
6. Maintenance Arrangements
Maintenance of the Company-owned plant and equipment will continue to be provided and on the same basis as for the Warrnambool (Tower Hill) translator, namely: -
- (i) the cost of routine maintenance visits, including travelling will be shared equally. Fault calls to your translator will be payable in full by your Company.
- (ii) the Company shall pay the cost of spare parts consumed by company-owned plant and equipment plus an appropriate Sales Tax loading. In addition, the Company shall be liable to pay one-half the cost of replacement parts consumed by items of common equipment.
Tower maintenance has been estimated to cost $400 per annum. This figure will vary in sympathy with changes in the salaries paid to Linemen employed by the Department: the staff category involved on tower maintenance. Your Company will be required to pay one-half of the annual charge in equal six-monthly instalments and each instalment is payable in advance. The first instalment was due on 1st January, 1969. When the telephony service is established at the site, your contribution shall reduce to one-third of the annual maintenance cost.
From time to time, maintenance work will need to be undertaken on the site, road and building. As the timing of this work and magnitude of cost is likely to be irregular, instead of seeking payment of one-third of the costs incurred, as incurred, it is proposed that your Company pay annually in advance, a nominal sum of $60 in respect of this maintenance work. This contribution will be reviewed every five years. The first annual payment would therefore have fallen due on 1st January, 1969.
7. Power Consumption
I wish to confirm that your company will meet all accounts for electricity consumed at the station and the national Television Service will repay to you, one-half of the amounts paid. Later, when the telephony service begins to operate at the site, the respective shares of power consumption costs will need to be reassessed.
I trust that the preceding arrangements are satisfactory.
Yours sincerely,
Director-General.
Letter dated 30th July 1969 from the managing director of the respondent to the Director-General of Posts and Telegraphs: -
Dear Mr. Knott,
re Translator - Mt. Clay
We refer to previous correspondence and discussions relative to the above; set out hereunder are terms and conditions to apply to the Company's use of common facilities as we understand them: -
(1) It has been agreed that total cost upon which rental will be based is $13,963.60 made up as follows:
Site $ 130.00 Building, fencing, tank 2,675.00 Switchboard 91.00 Light and power installation 2,033.00 Road Works 84.00 Tower 3,833.00 Other common facilities 3,250.00 ---------- $12,096.00 Administrative charge/Interest 1,867.60 ---------- $13,963.60 ----------Term of the Lease shall be for a period of five years and a rental shall amount to
ATC 4644
$1,396.36 for each six months commencing from 1st January, 1969.(2) At termination of period mentioned in paragraph one, the Company shall have the right to continue using the facilities named at a rental of $1.00 per annum.
(3) Authorised personnel of the Company shall have access at all times and may enter the building and climb the mast for purposes of inspecting the Company's equipment.
(4) Maintenance of building, mast and all equipment (including the Company's aerials) shall be undertaken by officer of the Postal Department.
The cost of routine maintenance visits including travelling will be shared equally. Fault calls to BTV-6 translator will be payable in full by my Company.
The Company shall pay the cost of spare parts consumed by Company owned plant and equipment plus an appropriate Sales Tax loading. In addition, the Company shall be liable to pay one half the cost of replacement parts consumed by items of common equipment.
We do not agree to bear one half the cost of tower maintenance. The tower was built on the basis that a telephony service would be installed and as such capital cost was greater than it would have been otherwise. We see no reason why this Company should pay for maintenance on that part of the mast which was erected for telephony purposes. We suggest our share of maintenance be set at $150.00 per annum.
It is understood this figure will vary in sympathy with changes in the salaries paid to linesmen.
In respect to maintenance on site, road and building, we agree to pay a sum of $60.00 per annum such to be reviewed every five years.
The company reserves the right upon giving three months' notice in writing to terminate the arrangement to service its equipment and aerials.
The Company will meet all accounts for electricity consumed at the station and the Postal Department will repay one half of the amounts so paid. When the telephony service is installed you will advise us and the share of power consumption costs will then be re-assessed.
If during the term of this arrangement facilities shall be damaged or destroyed, other than by reason of wear and tear, then: -
- (a) in the event of property owned by the Company being so affected, such shall be repaired or replaced solely at the discretion of and cost to the Company;
- (b) in the event of any of the facilities named in paragraph one hereof being so affected, the parties shall agree as to whether the necessary repairs or replacements should be made. Upon obtaining agreement the Postal Department shall expeditiously undertake the work necessary. The Company shall contribute as its share of cost a sum calculated in the following manner: -
Cost of facility as per para. 1 Cost of repairs or ------------------------------- x Total original cost of facility replacementIt would be appreciated if you will confirm that the foregoing embraces all the terms and conditions relative to the Mt. Clay installations as between your Department and my Company.
ATC 4645
Enclosed herein please find our cheque, value $2,131.36 made up as follows:
Alarm facility $ 630.00 Rental of translator facilities - Mt. Clay - 6 months ended 30 June, 1969 1,396.36 Maintenance Tower 75.00 Site Road and Building 30.00 --------- 6 months ended 30th June, 1969 $2,131.36 ---------Yours Sincerely,
B.F. Jackson
Managing Director''
Letter dated 22nd May 1970 from the Director-General of Posts and Telegraphs to the manager of the respondent: -
``Dear Sir,
The late Mr. Jackson wrote to me on 30th July, 1969, on his understanding of the conditions of sharing translator facilities at Mt. Clay (Portland). His comments have been closely studied by my staff for, as you know, sharing at this location differs from the usual position in that the Department has joined with the National Television Service and your Company in the use of facilities and sharing of establishment costs.
The Department will very shortly be installing microwave facilities at the station. When this work is complete, special access arrangements will apply. You must appreciate that we could not accept an arrangement where there is a risk that non-Post Office personnel may accidentally damage telecommunications equipment; the Department must take reasonable precautions to protect the public communication network from service disruption. Consequently, it has been a policy of many years standing that the Post Office maintain equipment co-housed with telephony facilities or arrange for the physical separation of such equipment.
Under the first approach, your Company would pay the cost of maintenance as it does at present, but the local Supervising Technician would have to accompany your staff on inspection visits and at Company expense. However, if you subsequently wished to terminate the maintenance arrangement with the Department, the second approach would apply. This involves the construction at your expense of a building partition and a separate building access. Once again, qualified Post Office staff would need to be present if aerial inspection or maintenance were contemplated. The former approach is a far more satisfactory solution as far as the Department is concerned and will be adopted unless you advise to the contrary.
You will see that we are unable to grant your staff unrestricted access to the station once telephony equipment has been installed. Until then, authorised staff may inspect Company equipment at convenient times. The Supervising Technician at the local telephone exchange retains the keys to the station and appropriate arrangements should be made with that officer prior to inspection visits.
Would you please note that under the sharing arrangements, a television licensee is granted a licence to use the facilities and this expression does not confer any rights of ownership. It is incorrect to describe the arrangement as a leasehold. This comment and future access provisions equally apply to the sharing arrangements at Tower Hill (Warrnambool). All other points in Mr. Jackson's letter, including reduction in the annual tower maintenance charge at Mt. Clay from $200 to $150 are agreed with.
I look forward to a continued association with your Company in the field of translator sharing.
Yours faithfully,
Director-General''
Letter dated 12th June 1970 from the general manager of the defendant to the Director-General of Posts and Telegraphs: -
``Dear Mr. Knott,
Thank you for your letter dated the 22nd May on the subject of the conditions
ATC 4646
of sharing our translator facilities at Mt. Clay (Portland).It is my Company's wish to continue the maintenance arrangement as at present and we are quite happy for the local supervising technician to accompany members of our staff on inspection visits and at our expense. On this point, my Chief Engineer, Mr. Brian Robertson, has asked whether it is possible for a deputy to be made available should your local supervising technician be absent from Portland on any occasion when he or his staff should wish to make such an inspection. Perhaps you might be good enough to let me know if this can be arranged.
I also note that under the sharing arrangements we will be granted a licence to use the facilities and confirm that this expression does not confer any rights or ownerships.
We too look forward to a long association with your Department in the field of translator sharing.
Yours sincerely,
John L. Stapp
General Manager.''
The half-yearly payment of $1,396 which was made by the respondent during the year of income ended 30th June, 1969 in performance of the agreement with respect to the mast at Mt. Clay was apportioned by the Commissioner in the same way as he had apportioned the other payments. The material before me disclosed the nature of the interests which the Commonwealth and its agents held in the land at Tower Hill and Mt. Clay on which the translator facilities stand. The respondent had no proprietary interest in the land at either place after the land at Mt. Clay was purchased from it by the Commonwealth in 1969.
The licences from which the respondent derives its rights to transmit television signals from the three masts were granted for initial periods of five years and have been thereafter renewed annually. All three masts have the same expected ``life'', according to the agreed statement of facts.
The correspondence with respect to the two masts which are adjunctive to translator stations exhibits differences from the correspondence which relates to the mast on Lookout Hill, but I think that the reasons which lead to the conclusions I have expressed concerning the expenditure at Lookout Hill are applicable to the expenditure in respect of the translator facilities. My conclusion is that the latter expenditure consisted of instalments of the prices of capital assets and interest on those prices.
The decision of the Board of Review, by a majority, was that no part of any of the payments was an outgoing of a capital nature. Having reached a contrary conclusion about each of the payments, I allow each appeal and order that the decision of the Board of Review on each reference be set aside. I will hear counsel for the parties as to what further order should be made in each appeal.
After discussion the further hearing of the Appeals was adjourned to a date to be fixed.
Final Orders, 13 November 1978
His Honour:... the first thing to do is, by consent recall the orders pronounced on 30th October 1978 and order that the appeals be consolidated, that the appeals be allowed and that in each appeal the decision of the Board of Review on the reference to it be set aside; that there be no order as to costs.
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