Australian Airlines Ltd v FC of T

Judges:
Jenkinson J

Court:
Federal Court

Judgment date: Judgment delivered 1 April 1996

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Jenkinson J

Appeal against the respondent's disallowance of the applicant's objection against refusal of a refund of sales tax paid by the applicant.

In and before March 1991, when the objection was disallowed, the applicant was a company limited by shares, all of which were beneficially owned by the Commonwealth. The applicant owed its existence as such an entity, which commenced on 30 April 1988, to the Australian Airlines (Conversion to Public Company) Act 1988. At relevant times the applicant carried on a business which included the conduct of a regular public transport service by aircraft. The operator of such a service was required by regulation 217 of the Civil Aviation Regulations to ``provide a training and checking organisation so as to ensure that members of the operator's operating crews maintain their competency''. Further, because the pilot licence without which an airline pilot may not act as a pilot in regular public transport services can be obtained only after he has acquired competency in flying the particular type or types of aircraft to which the licence relates, the applicant, and other operators, required a training organisation to ensure that those aspiring to obtain such licences attain, as well as maintain, that competency. At material times the applicant conducted such an organisation, which it called a flight training centre.

At material times s. 5 of the Sales Tax (Exemptions and Classifications) Act 1935 and item 63A of the First Schedule to that Act provided that sales tax should not be payable upon the sale value of any goods covered by that item. Item 63A reads:

``Goods for use (whether as goods or in some other form), and not for sale, by a university or school conducted by an organization not carried on for the profit of an individual.''

The applicant's claim for a refund of sales tax related to goods imported into Australia in February 1989 for use, and not for sale, by its flight training centre. The centre was said by the applicant to be a ``school'', within the meaning of that word in item 63A, and the organization by which the school was conducted, namely the applicant, was not carried on for the profit of an individual, it was said, but for the profit of the Commonwealth of Australia, the beneficial owner of all the shares in the applicant.

In 1989 the Civil Aviation Act 1988 and regulations made under that Act and orders made under the regulations ordained procedures for ensuring the safety of civil air operations in this country and, to that end, procedures for ensuring the safe and efficient operation of regular public transport services by the flight crews operating the aircraft. The latter procedures included prescription of syllabuses of training, licensing of instructors and testers and examiners by the Civil Aviation Authority, and the prescription of examinations and of periodical testing of proficiency. Each of the three Australian operators at that time conducted its own ``training and checking organisation'' in compliance with regulation 217. The applicant's centre was in a building complex specifically designed for its use as such a centre. The buildings housed aircraft flight simulators: structures each housing an imitation of the cockpit of an aircraft of a type in use in the applicant's regular public transport service, and each mounted on hydraulic hoists capable of tilting and lowering and raising the cockpit to simulate the changing orientation of the cockpit of an aircraft in flight. By the operation of computer programs a pilot's operation of the aircraft controls and instruments in the flight simulator has the apparent effects which would result from operation of the same controls and instruments in a real aircraft of that type. The visual and auditory impressions of flight are simulated, so that a landing or take-off at a particular Australian or foreign airport can be experienced. Abnormal conditions of the environment, or of one or more of the aircraft's control or flight systems, can be simulated. There were in other parts of the building facilities for instruction similar to classrooms, some with computer terminals, and a substantial library of videotape instructions and testing material. There were structures simulating the passenger compartments of large commercial

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ATC 4326

aircraft and structures simulating the exterior of such an aircraft, from which emergency evacuation of passengers would be conducted, into life rafts or to the ground.

Flight attendants were also trained at the centre. Their instruction in emergency procedures and in their co-operation with flight crew was by instructors responsible to the Flight Operations Manager, who controlled flight crew training. Their other training was by instructors responsible to the manager of flight attendant training.

Most trainees were employees of the applicant who were, or who aspired to be, flight crew members, whether pilots or engineers. Others were employees of foreign airlines, most of which were based in countries of the Pacific or Indian Ocean, and officers of the Civil Aviation Authority. Although there was evidence that any suitably qualified pilot who sought to be trained at the centre would have been accepted, that qualification was a licence unlikely to be held by a person not engaged in commercial aviation. Almost all trainees entered upon training at the centre holding a senior commercial pilot licence or an airline transport pilot licence.

The applicant charged for the provision of services at the centre fees intended to return it a profit. The fees charged another airline in respect of the training of its employees were, if the applicant's instructors were involved, greater than if, as was frequently the case, the instructors were employees of that other airline.

Many of the functions of the Civil Aviation Authority in respect of testing and checking flight crew proficiency were formally delegated to employees of the applicant, including some of those who were engaged in instructing trainees at the centre.

Use of the facilities at the centre was extensive. In addition to flight crew training and testing and checking, licensed aircraft maintenance engineers underwent training in the aircraft flight simulators. Educational courses for the public, organised by the Women's Pilots' Association, were conducted at the centre, mainly by the instructors of the centre. Some conferences of classes of airline employees, and educational demonstrations by manufacturers of aircraft and aircraft equipment, were held at the centre.

The phrase ``goods for use... by a university or school'' in item 63A is similar to the phrase ``goods for use in universities and schools'' in item 63, which appeared in the original Sales Tax Exemptions Act 1935 (No. 60 of 1935) in the same terms as in 1989 in the Sales Tax (Exemptions and Classifications) Act 1935, namely:

``Goods for use in universities and schools, viz:-

• (1) Scientific instruments and scientific apparatus (and parts therefor), and materials for use therewith.
• (2) Charts, wall sheets and diagrams.
• (3) Examination papers, and direction sheets and envelopes for use therewith.''

(Item 63 had been omitted by Act No. 76 of 1930, but was inserted again by Act No. 6 of 1942.) In its original form item 63A included another similar phrase when it was inserted by Act No. 12 of 1946, in these terms:

``63A Goods for use (whether as goods or in some other form), exclusively for the purposes of tuition, by a university or by a school conducted by an organization not established or carried on for the profit of an individual, but not including any goods for sale, or equipment, apparatus or accessories of a kind used exclusively, or primarily and principally, in indoor or outdoor sports or games, gymnastics, athletics or physical culture.''

In all three items the context and the collocation of the words ``university'' and ``school'' (or the plural of each) may be thought to suggest that the legislature was using the word ``school'' in what Simonds J. called ``its primary and natural meaning - namely, a place where boys and girls receive instruction and discipline''. (
Lawrence v. South County Freeholds Ltd. [1939] Ch. 656 at 671.) And the words in items 63A and 63B which follow the word ``school'' are obscure. I think that paragraphs 15AB(1)(a), 15AB(1)(b) and 15AB(2)(f) of the Acts Interpretation Act 1901 authorise my giving consideration to the second reading speech of Sir Arthur Fadden on the Bill for what was enacted as the Sales Tax (Exemptions and Classifications) Act 1952, by which item 63A was omitted and the following items were inserted:

``63A Goods for use (whether as goods or in some other form), and not for sale, by a

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university or school conducted by an organization not carried on for the profit of an individual.

63B (1) Goods for use (whether as goods or in some other form), and not for sale, by a society, institution or organization established and carried on exclusively or principally for the promotion of the interests of a university or school conducted by an organization not carried on for the profit of an individual.

(2) Goods for use (whether as goods or in some other form), and not for sale, by a society, institution or organization established and carried on exclusively or principally for the promotion of competitive sport among the students of universities or schools conducted by organizations not carried on for the profit of an individual.''

Of these provisions the Treasurer observed (Hansard; House of Representatives; 6 August 1952, p. 100):

``In addition to these reductions of rates it is proposed to exempt some further categories of goods from sales tax. The more important is the category of goods for the use of universities and schools which are not established or carried on for profit. At present, complete exemption is enjoyed only by government schools. Universities and other non-profit schools have a limited exemption of scientific equipment and goods for use exclusively for the purposes of tuition. Tax has been payable on their purchases of ordinary furnishings and sporting equipment, and the effect of the limitation of the exemption has been more burdensome since sporting equipment has been subject to the rate of 33 per cent. The position has been further complicated by the fact that associations of parents and friends established to assist schools have been able to purchase all kinds of goods free of tax for donation to the schools. It is considered that this inconsistency should be removed, and that the complete exemption now granted in respect of goods for the use of these institutions will eliminate confusion and be of material assistance to them. Tax will still be payable in respect of any goods acquired by them for re-sale, except when the goods are of kinds which are exempt in all circumstances, such as text-books.''

The reference in that passage to associations of parents and friends established to assist schools recognised the operation of sub-item 75(3), which had been added by Act No. 12 of 1946 and which was omitted by the 1952 Act. That sub-item read:

``(3) Goods for use (whether as goods or in some other form), and not for sale, by a society, institution or organization which is established and carried on exclusively or principally for the promotion of the interests of a university, or of a school which is conducted by an organization not carried on for the profit of an individual.''

The Treasurer's observations might be thought to tend to confirm that the meaning of the word ``school'' in item 63A, as in force in 1989, was that which Simonds J. thought the primary and natural meaning.

Mr. Myers Q.C., who appeared with Mr. Maxwell for the applicant, relied upon an exposition by Barwick C.J., in whose judgment McTiernan and Stephen JJ. concurred, of the meaning of the word ``school'' in a provision of the New South Wales Public Works Act 1912 (s. 40(1)(c)) which authorised compulsory acquisition when ``the Governor has sanctioned the acquisition of any lands for school sites or for sites for public offices or public buildings''. The land in question was required for carrying on the activities of an existing National Fitness Camp, which adjoined the land sought to be compulsorily acquired. In
Cromer Golf Club Ltd. v. Downs (1973) 47 A.L.J.R. 219 at 221-222 the Chief Justice said:

``I have already pointed out that the word `school' in par. (c) of s. 40(1) is not limited in its meaning to that of a school as in and under the Public Instruction Act; in particular, that is not a public school under the Public Instruction Act which is necessarily in contemplation in that paragraph. A site may properly be acquired for a school though authority to construct a school on the site has not yet been conferred on the Minister. That authority, presumably legislative in origin, may well exceed the authority presently conferred by the Public Instruction Act.

It seems to me that a `school' is a place where people, whether young, adolescent or adult, assemble for the purpose of being instructed in some area of knowledge or of

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ATC 4328

activity. Thus there are drama schools, ballet schools, technical schools, trade schools, agricultural schools and so on.

In my opinion, the activities of the National Fitness Camp at Narrabeen as described in the evidence predominantly involve the instruction of young and adolescent people in the care and improvement of the body, broadly an area of knowledge and expertise generally described as physical fitness. The form of the instruction no doubt varies and includes demonstrations and practice, but the character of the camp as so evidenced is, in my opinion, that of a place to which young and adolescent people resort in considerable numbers for the purpose of being instructed. That, it seems to me, makes the camp predominantly a school within the meaning of s. 40(1)(c) of the Public Works Act. Therefore, in my opinion, the acquisition of an area of land for the extension of these instructional activities of the camp can properly be described as an acquisition of land for a school site within the meaning of par. (c) of s. 40(1).''

I accept that in its ordinary meaning in this country the word ``school'' comprehends an institution in which instruction in some area or areas of knowledge or activity is imparted, whether to children or adults, by persons professing the capacity to give that instruction, the institution having as its reason for existence the imparting of that instruction. Speaking of a provision imposing a concessional rate of customs duty on ``goods... that are for use for instructional purposes in a university, college, school or other educational institution'' the Administrative Appeals Tribunal, constituted by Mr. Justice Neaves, Deputy President A.N. Hall and Sir Albert Coates, observed:

``21. Each of the expressions `university', `college', `school' and `educational institution' is in common usage. Each is an expression of wide and general import and it is not easy to define any of them in precise and accurate language or to lay down precise criteria by the application of which one may confidently determine whether or not a particular body answers the description. The legislature has not seen fit to define the expressions and neither has the by-law essayed the task. Perhaps all that can be said is that, for the most part, one can identify a university, college, school or an educational institution when one sees it.

22. The collocation of expressions used in the item and the by-law convey, in our opinion, a definite impression that the special, and lower, rate of duty is to apply where the goods are to be used for instructional purposes in a body or institution that exists for the dominant or primary purpose of imparting knowledge as an object or end in itself. That is, so it seems to us, the thread common to each of the expressions that the item and the by-law employ and is a view that is consistent with, and indeed reflects, the underlying object and purpose which may be discerned in the provisions. They each refer to institutions or bodies that can be seen as part of the general educational system. They are not, in our view, expressions that are apt to describe an in-house training system for a commercial flying organisation.

23. We are in no doubt that the flight operations training centre has, as part of its objects, the imparting of knowledge in a variety of subjects including aircraft performance, operational requirements and safety and emergency procedures and that it aspires to the highest standards in those who undertake its courses of training. But the imparting of knowledge is not, for the centre, an end in itself. The centre is but an integral and necessary part of a large commercial undertaking carrying on an international airline service. We cannot think that the function of the centre can be characterised as if it were separate from the wider organization of which it forms part. Looked at in this context, its dominant or primary purpose is to give training and instruction for the purpose of maintaining the level of skills for specific duties that employees of the applicant already perform in the conduct of the applicant's business or for the purpose of enhancing those skills to fit those employees for the carrying out of other duties that may be assigned to them within that business. This is not, of course, an exhaustive statement of the activities of the centre but it is these activities which stamp the centre with its character. The raison d'etre of the applicant is the efficient, cost-effective transportation by air of passengers and goods. The training centre

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exists to ensure that the staff have the necessary skills, training and experience in simulated conditions to perform their respective duties in such a way as to achieve the applicant's objective.''

The applicant before the Administrative Appeals Tribunal was Qantas Airways Ltd., in a proceeding numbered N83/722. The goods in question had been entered for home consumption in 1981 and 1982 when Qantas Airways Ltd. was conducting a flight training centre, for use for instructional purposes in which the goods were intended. In all respects relevant to the decision of this appeal the activities in that centre and the legislative provisions under and in compliance with which those activities were carried on are indistinguishable from those which are under consideration in this appeal in relation to the present applicant's centre. The legislation was the Air Navigation Act 1920 and the Air Navigation Regulations and orders made under those provisions, but the same legislation is now found in the Civil Aviation Act 1988 and the regulations and orders dependant on that Act.

Mr. Myers submitted that the reasoning of the Administrative Appeals Tribunal failed to recognise the separate identity of a flight training centre and failed to recognise that its reason for existence is to impart instruction. He submitted also that the particular collocation of words under consideration by the Tribunal - ``a university, college, school or other educational institution'' - might have justified the conceptual limitation which the Tribunal propounded, but that no similar justification could be found upon a consideration of the two words ``university or school'' in item 63A. Integration of an institution existing to impart instruction within, and as part of, an institution or organisation existing to attain quite different objectives does not, in Mr. Myers' submission, take the integrated institution outside the ordinary meaning of the word ``school''.

The latter submission I accept. A school for the general education of the choir boys conducted by the chapter of a cathedral is a school in ordinary parlance. So, too, I think, would be a trade school for employees of a manufacturing or trading company conducted by the company. A school does not lose that appellation by reason of its being conducted for the profit of those who conduct it, as the legislature recognised by concluding item 63A with the words ``conducted by an organization not carried on for the profit of an individual''. An institution may in my opinion be said to have as its reason for existence the imparting of instruction, notwithstanding that laws requiring employees engaged in a particular activity to gain and maintain competence in the subject of instruction, and requiring their employer to provide an organisation for that instruction, have also been the reason for the existence of the institution as an integral part of the business in which that activity is carried on.

Mr. Shaw Q.C., who appeared with Mrs. Symon for the respondent, relied on the circumstance that a substantial proportion of the activities taking place in the centre did not involve the imparting of instruction by the applicant's employees. In complying with the requirements of the legislative regime for ensuring the competence of air crew the members of the crew periodically perform operations in the centre, not to receive instruction or to attain competence, but to demonstrate that their competence has not declined but has been maintained. And much of the activity in the centre of employees of foreign airlines is supervised, not by the applicant's employees, but by instructors employed by those foreign airlines. And Mr. Shaw pointed to the other uses made of the centre's facilities which were unconnected with the training of persons employed to operate or maintain aircraft.

The circumstances on which Mr. Shaw relied do not, as I think, tend to the conclusion that the centre is not a school. Instructors and testers and checkers, as the persons supervising the activities are variously known, take up the task of instruction and training as and when an air crew member's performance of an operation while being tested or checked suggests any lack of competence. Evaluation of the trainee's performance is a technique of instruction, by which any need of further instruction is disclosed. And the periodic testing and checking sessions provide also the occasions for instruction and training in new developments in aircraft equipment and operation. School premises may be put occasionally to uses unconnected with schooling the pupils without casting doubt on the conclusion that the premises, and the institution, are each rightly described as a school. So, too, may rare or very

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ATC 4330

expensive facilities or equipment owned by a school be made available for use by persons who do not receive instruction by the school's teachers, without casting doubt on that conclusion.

On a consideration of all the circumstances which the evidence disclosed I find that the applicant's flight training centre was in February 1989 a school within the meaning of that word in item 63A.

The question whether the applicant was at the relevant time ``an organisation not carried on for the profit of an individual'' was answered by Mr. Myers, first, by insistence that in the context of item 63A any conceivable meaning of the word ``individual'' in ordinary speech (as distinct from the discourse of logic, metaphysics, botany or biology) is limited in its denotation to human beings, and, second, that the shares in the applicant of which the Commonwealth of Australia was at relevant times the holder and the other shares of which it was the beneficial owner did not entitle any individual to a share of the applicant's profit. Acknowledging that the expressions ``The Commonwealth'' and ``The Commonwealth of Australia'' are used in the Constitution and in the legislation of the Federal Parliament in several senses, Mr. Myers submitted that the latter expression, used in designation of the person holding the shares, signified the Crown in right of the Commonwealth. The word ``individual'' could not comprehend that person, it was submitted.

In my opinion the choice by the legislature of the word ``individual'', like the choice of the word ``organization'', for use in item 63A was intended as a means of comprehending the diversity of persons (that is, legal persons) and associations of persons which conducted schools in this country and to ensure that the derivation or the seeking of profit by the conduct of a school should not bar enjoyment of the exemption granted by item 63A if the profit gained or sought was not for any one or more individuals, but for an unidentified plurality of persons, such as present and future scholars of the school, or those who should have to pay their fees, or those who should in the future be asked to donate money to enable the school to expand or to continue, or those who should from time to time benefit by distribution of such profits for charitable purposes. The items which I have quoted and the second reading speech in my opinion indicate that legislative intention. That being so, the word ``individual'' should in my opinion be understood as comprehending only a human being, so that the interposition of a body corporate, which conducts a university or a school for a profit which will benefit only such an unidentified plurality of persons, between the profits gained and those persons will not frustrate that intention.

One objection by Mr. Shaw to such a construction of the phrase ``conducted by an organisation not carried on for the profit of an individual'' was that, if a member of a company which conducted a school for profit held his shares as trustee under a discretionary trust of which one or more human beings and a charity were possible beneficiaries, it would not be possible to say until the discretion had been exercised whether, in relation to the profit yielded by those shares, an identified human being had benefited. But unless each share in the company were so held, no difficulty would arise: the expression ``for the profit of an individual'' is in my opinion to be understood as comprehending a profit in which any one or more identified natural persons will share beneficially.

The training centre was conducted by the applicant. The applicant was in my opinion an ``organisation'' within the meaning of that word in item 63A and it was carried on for its own profit, but it was not an ``individual'' in the sense I have assigned to that word. The applicant was also carried on for the profit of those of its shareholders whose shares were held beneficially. The human beings who in February 1989 were members of the applicant held their shares in trust for the Commonwealth. The only other member of the applicant was the Commonwealth, which has legal personality. At the relevant time the applicant was an organisation carried on for the profit of the Commonwealth. The profit gained by that shareholder did not pass to any identified human being, but was held for the benefit of the unidentified people of the Commonwealth for the time being, to be applied in accordance with the laws of the Commonwealth. That position, in February 1989, was susceptible of change: Parts III and IV of the Australian Airlines (Conversion to Public Company) Act 1988 had operated to constitute the applicant a company deemed to be a corporation within the meaning of the

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Companies Act 1981, the shares in which were transferable. But in February 1989 the shareholding in the applicant was such that in my opinion the applicant was ``an organization not carried on for the profit of an individual'', within the meaning of those words in item 63A.

The appeal will be allowed, the respondent's decision on the objection set aside and the matter of the objection remitted to the respondent to be dealt with according to law. There will be an order that the applicant's costs of the appeal be paid by the respondent.

THE COURT ORDERS THAT:

1. The appeal be allowed.

2. The respondent's decision on the applicant's objection be set aside.

3. The matter of the said objection be remitted to the respondent to be dealt with according to law.

4. The respondent pay the applicant's costs of the appeal (including costs reserved).