Hamilton Island Enterprises Pty. Limited v. Federal Commissioner of Taxation.

Judges:
Rogers J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 31 March 1982.

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Rogers J.

Hamilton Island Enterprises Pty. Limited appeals from a decision of the Commissioner of Taxation disallowing its objection to an assessment in respect of the year ended 30th June 1976. The taxpayer claims to be entitled to deductions for investment allowance conformably to the provisions of Subdiv. B of Div. 3, Pt. III of the Income Tax Assessment Act, 1936 in respect of two helicopters.

The facts are within a brief compass and are not in dispute. Should it matter, I record the fact that I accept Mr. Keith Williams, the only witness who gave oral evidence as a witness of truth.

By two lease agreements entered into, for relevant purposes, between the taxpayer as lessee and Industrial Acceptance Corporation Ltd. as lessor and each bearing date 28th June 1976, the taxpayer leased a Bell Jet Ranger helicopter and a Hughes 300C helicopter. At the time of acquisition of the two helicopters, it was intended to use them in general charter work, air/sea rescue work, flying training and one further activity which has grounded the disallowance by the Commissioner of the taxpayer's claim.

One of the two equal shareholders in the taxpayer was Sea World Pty. Ltd. That company conducted, inter alia, an enterprise known as ``Sea World'' at Coolangatta. By letter dated the 3rd July 1976, that company confirmed an arrangement between itself and the taxpayer for the charter from time to time of one or other of the helicopters complete with pilot and an assistant, to arrange for passengers' embarkation. The helicopter when chartered was to carry Sea World customers on scenic or joy flights. The taxpayer was to be paid the proceeds of sale of tickets to passengers less 20%. Scenic or joy flights were to be undertaken only when the helicopters were not required for other charter work.

As it happened the taxpayer was unsuccessful in obtaining a contract for the air/sea rescue operation which it contemplated at the time of acquisition. Otherwise its operations so far as the helicopters were concerned, conformed to its initial plans, with the proviso that the Jet Ranger was required to be used for joy flights rather than the Hughes 300 in view of a decision of the Department of Transport. The use of the helicopters was in accordance with the conditions laid down by the letter of 3rd July 1976.

So as to make the argument intelligible it is necessary to set out in some little detail the statutory provisions providing for an investment allowance as they stood at the relevant time.

Section 82AA provided as follows:

``Subject to the following provisions of this Subdivision, this Subdivision applies to a unit of eligible property acquired or constructed by the taxpayer that is -

• (a) in the case of any taxpayer, for use by the taxpayer wholly and exclusively -
  • (i) in Australia; and
  • (ii) for the purpose of producing assessable income otherwise than by -
    • (A) the leasing of the eligible property;
    • (B) the letting of the eligible property on hire under a hire-purchase agreement; or
    • (C) the granting to other persons of rights to use the eligible property; or
• (b) in the case of a taxpayer being a leasing company, for use wholly and exclusively -
  • (i) in Australia; and
  • (ii) for the purpose of producing assessable income,

  by another person to whom the taxpayer has, on or after 1 January 1976, leased the eligible property under a long-term lease agreement that was entered into by the taxpayer in the course of carrying on business in Australia and was so entered into by the taxpayer and the other person at arm's length.''

The definition section for the purposes of the Subdivision is sec. 82AQ. That defined ``eligible property'' as meaning ``plant or articles within the meaning of section 54 and includes earth tanks constructed for the purpose of conserving water for use in carrying on a business of primary

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production;''. Section 82AB set out the quantum of the entitlement and sec. 82AE and AF excluded certain items there specified from the benefit of the investment allowance. By sec. 82AE expenditure for structural improvements were excluded other than those specified in subsec. (a) and (b). Subsection (a) preserved the allowance in respect of plumbing fixtures and fittings in premises acquired after 30th June 1938 or installed in premises after that date by a person carrying on a business for the purpose of producing assessable income as specified in sec.54(2)(c):

``not being fixtures or fittings for use in or in connexion with the provision for employees of facilities for entertainment, amusement or gambling or for engaging in cultural, sporting or recreational pursuits or in any similar activities;.''

Subsection (b) preserved the allowance in respect of structural improvements on land used for the business of carrying on a business of primary production being fences, pipes and buildings erected for specified uses or purposes.

Section 82AF provided as follows:

``(1) This Subdivision does not apply in relation to -

• (a) appliances (including wireless receivers and television receivers and antennae) of a kind ordinarily used for household purposes, other than such appliances that are -
  • (i) for use in a business carried on by the taxpayer a substantial part of which consists of the provision by the taxpayer of accommodation for tourists or travellers; or
  • (ii) for use in premises used or held for use by the taxpayer principally for the purpose of deriving income in the nature of rent by the provision of accommodation for tourists or travellers; or
• (b) furniture and furnishings, light fittings, partitions, fitting rooms, signs (including neon signs), shelving, cupboards, counters, display models, display cases, display stands and articles of a description, or having a use, similar to that of any of those articles, other than articles that are -
  • (i) for use in a business carried on by the taxpayer a substantial part of which consists of the provision by the taxpayer of accommodation for tourists or travellers;
  • (ii) for use in premises used or held for use by the taxpayer principally for the purpose of deriving income in the nature of rent by the provision of accommodation for tourists or travellers; or
  • (iii) for use by the taxpayer principally for the purpose of providing clothing cupboards, first-aid or rest-room facilities, or meals or facilities for meals, for persons employed by the taxpayer in a business carried on by him or for the care of children of those persons.

(2) This Subdivision does not apply in relation to -

• (a) motor vehicles (including vehicles known as four wheel drive vehicles) that are -
  • (i) motor cars, station wagons, panel vans, utility trucks or similar vehicles;
  • (ii) motor cycles or similar vehicles; or
  • (iii) other road vehicles designed to carry loads of less than 1 tonne or fewer than 9 passengers;
• (b) articles being, or being reproductions of, paintings, sculptures, drawings, engravings or photographs, or articles of a description, or having a use, similar to that of any of those articles;
• (c) books;
• (d) films, tapes, discs or other similar devices in which images or sounds are, or information is, stored or that are designed to be used for the storage of images, sounds or information;
• (e) musical instruments and equipment for use in conjunction with musical instruments;
• (f) plant or articles (other than plant or articles referred to in sub-section (1)) for use in, or primarily and principally in connexion with -

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  • (i) amusement or recreation;
  • (ii) sport (including the racing of animals or vehicles) or physical exercise or any similar activities;
  • (iii) gaming or gambling;
  • (iv) circus performances or the performance in public of music, plays, dancing or similar entertainment; or
  • (v) the exhibition to the public of cinematograph films otherwise than by television broadcasting;
• (g) plant or articles referred to in paragraph (h) or (i) of sub-section (3) of section 62AA or in paragraph (h) of sub-section (3) of section 62AB;
• (h) wharves or jetties; or
• (j) wearing apparel (other than wearing apparel designed principally for protective purposes) and accessories to such apparel.''

(Emphasis added.)

Section 82AG(3) provided as follows:

``(3) This Subdivision does not apply, and shall be deemed never to have applied, in relation to property leased by a leasing company to another person (in this sub-section referred to as the `lessee') if, before the expiration of 12 months after the property was first used, or installed ready for use, by the lessee -

• (a) the property was disposed of by the leasing company to a person other than the lessee or was lost or destroyed;
• (b) the lessee used the property outside Australia or for a purpose other than the purpose of producing assessable income;
• (c) the lease was terminated otherwise than by the acquisition of the property by the lessee;
• (d) while the lease was in force the lessee entered into a contract or arrangement with another person for the use of the property by that other person; or
• (e) the lessee acquired the property and disposed of it.''

The respondent relied on sec.82AF(2)(f)(i) as disentitling the taxpayer to the allowance claimed. However, no reliance was placed upon the second limb of the subsection, in other words, it was not contended that the helicopters were for use primarily and principally in connexion with amusement or recreation. Further, although a submission was put to me during the hearing that subsec. (3) operated to disentitle the taxpayer to the deduction sought, I was subsequently informed by senior counsel for the respondent that that submission was withdrawn.

For the taxpayer it was firstly submitted that even if the helicopters had been intended to be used and/or were in fact used for joy flights and scenic flights by the taxpayer itself, such activities would not have been ``amusement or recreation'' within the statutory provision.

Counsel submitted that it was clear from the use of language in sec. 82AE(a) that amusement or recreation were not co-extensive with entertainment or cultural or sporting pursuits. Where the draftsman intended to use terms with wider connotations he did so and the activities here in question did not fall within the narrower words of subsec. (2)(f)(i). In my view it is inappropriate to regard the words of sec. 82AE(a) as mutually exclusive. A cultural pursuit may also be entertainment (e.g. a concert), a sporting activity may also be recreational or amusement and gambling may be entertainment. It seems to me that I have to give ``amusement or recreation'' their ordinary meaning be that wide or narrow.

For the respondent attention was drawn to the width of the definition provided by the Shorter Oxford Dictionary for both the terms utilised in the Statute. Thus the verb ``amuse'' is defined inter alia as ``to divert the attention of from serious business, hence to divert''. ``Recreation'' in turn is defined as ``to refresh or enliven the mind, the spirits, the person by some pastime, amusement, occupation or agreeable news''. In my view, the use of helicopters for joy flights or scenic flights does fall within the definitions.

It was next submitted on behalf of the taxpayer that on the proper construction of

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the subsection, the helicopters were not ``for use in'' the specified activity within the meaning of sec. 82AF(2)(f)(i). Counsel submitted that the use contemplated was use by the taxpayer.

It was submitted that on the uncontradicted evidence the helicopters were intended for use in chartering. This is indubitably so. For the Commissioner it was submitted that it was irrelevant that there intervened between the taxpayer and the ultimate use in joy or scenic flights the presence of another legal entity. Attention was required to be focused on the use whether by the taxpayer or another entity. Counsel drew attention to the fact that the Subdivision was meticulous in referring to ``use'' by particular entities other than the taxpayer (e.g. sec. 82AA(a)(ii)(C); 82AG(1)(b) and (3)(d)) where that was intended to be encompassed. Equally the Act referred to ``use'' by the taxpayer from time to time (e.g. sec.82AA(a); 82AF(1)). Thus it was submitted that there was no warrant for reading down the subject provision by reading it as ``for use in... amusement or recreation by the taxpayer''. It may be added that the notion of concurrent use by two entities of an item of property in this statutory setting has been recognised and explored by the Federal Court in
F.C. of T. v. Tourapark Pty. Ltd. 80 ATC 4503 at p. 4507.

Since the conclusion of argument there has come to hand the judgment of Shepherdson J. in
Smith v. F.C of T. 82 ATC 4073. His Honour was concerned with a submission precisely in point. His Honour said (at pp. 4079-4080):

``Mr. Davies Q.C. who appeared for the taxpayer submitted that subsec. 82AF(2)(f) poses two alternative tests which are:

• (1) Was the vessel acquired by the taxpayer for (the dominant purpose of) use by him in the activity engaged in by him of amusement or recreation or sport?
• (2) Was the vessel acquired by him primarily and principally for use by him in connection with the activity engaged in of amusement or recreation or sport?

He further submitted that the phrase `for use' in this subsection means `acquired or constructed by the taxpayer for use by him for the purpose of producing assessable income'. He bases this submission on a reading of sec. 82AF with sec. 82AA and in particular para. 82AA(a) which provides:

• `... this Subdivision applies in relation to a unit of eligible property acquired or constructed by the taxpayer that is... for use by the taxpayer... for the purpose of producing assessable income...'

He relies also on certain provisions in subsec. 82AF(1) in which there are references to `use in a business carried on by the taxpayer' and `use in premises used or held for use by the taxpayer principally for the purpose of deriving income in the nature of...'.

The difficulty I have in accepting these submissions is that when one comes to subsec. 82AF(2)(f) there has been a change in the language of the statute.

One notes also sec. 82AE which provides that the Subdivision is not to apply in relation to certain structural improvements, and states:

• `... fixtures or fittings for use in or in connexion with the provision for employees of facilities for entertainment, amusement or gambling or for engaging in cultural, sporting or recreational pursuits or in any similar activities...'

are not to have the benefit of the investment allowance. Subsection 82AF(1) has (as Mr. Davies correctly points out) on a number of occasions referred to use in a business of the taxpayer.

However, the change when one comes to subsec. 82AF(2)(f) is quite marked and to accede to Mr. Davies' submissions requires me to read the words `by the taxpayer' into the legislation after the words `for use' in subpara. (f).

I do not accept the submissions because, giving the language its natural meaning, in my view it is the use to which the vessel

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was put which determines whether or not the Subdivision is to apply.''

In my view it is of cardinal importance in the proper administration of justice that single judges of State Supreme Courts exercising federal jurisdiction should strive for uniformity in the interpretation of Commonwealth legislation. Unless I were of the view that the decision of another judge of co-ordinate authority was clearly wrong I would follow his decision. I do so in this instance.

That is sufficient to dispose of this appeal but I should add that in any event the decision of the Federal Court in Tourapark and the reasoning there employed lead me to the conclusion that the deduction claimed is required to be denied by sec. 82AA(a)(ii)(C) and/or 82AG(3)(d). The charter to Sea World was, in my view, conformably to the reasoning employed by the Federal Court a contract by the lessee taxpayer with another person (Sea World Pty. Limited) for the use of the helicopter by that other person. It is true that the decision of the Federal Court is the subject of an appeal to the High Court but I have been asked to express my views without awaiting the guidance to be had from that Court.

In the result the appeal is dismissed and the appellant is ordered to pay the respondent's costs. Exhibits may be handed out after the elapse of twenty-eight (28) days unless application is made within that time to the Federal Court for leave to appeal.