Carpentaria Transport Pty. Ltd. v. Federal Commissioner of Taxation
90 ATC 4590
Judgment date: Judgment handed down 6 July 1990.
Davies J.: This is an appeal from a decision of the Administrative Appeals Tribunal which upheld a decision of the Commissioner disallowing an objection lodged in respect of the year ended 30 June 1984 [reported as Case W64,
89 ATC 581]. The objection had claimed that certain roller shutter doors were plant or articles for the purpose of sec. 54 of the Income Tax Assessment Act 1936 (Cth) (``the Act'') and were also the subject of investment allowance under sec. 82AA of the Act.
As the appeal is brought under sec. 44 of the Administrative Appeals Tribunal Act 1975 (Cth), it is limited to questions of law.
The applicant, Carpentaria Transport Pty. Ltd. (``Carpentaria Transport''), carried on the business of transport operator in Northern Australia and had erected for it in Cairns a large terminal building for the storage of freight. The terminal building (``warehouse'') was 60m long and 30m wide and was used to store goods pending their transport elsewhere. It was an open building into which trucks and the like could be driven. Around each wall, between the steel pillars that supported the roof trusses and the roof, there were placed roller shutter doors, each of which was driven by an electric motor. There were 20 motorised roller doors in all in the walls of the building. The intent was that, by raising or lowering the appropriate roller door when required, ready access could be obtained to goods stored throughout the warehouse. In practice, doors were raised and lowered constantly throughout the day as access was required to goods.
The Tribunal concluded that the roller shutter doors were not plant but formed an integral part of a building structure which was not plant. The Tribunal held that the roller doors formed a part of the setting in which the warehouse operation was conducted. The Tribunal referred to the following traditional authorities on the issue:
Quarries Ltd. v. F.C. of T. (1961) 106 C.L.R. 310,
Wangaratta Woollen Mills Ltd. v. F.C. of T. 69 ATC 4095; (1969) 119 C.L.R. 1,
Imperial Chemical Industries of Australia & New Zealand Ltd. v. F.C. of T. 70 ATC 4024; (1970) 120 C.L.R. 396,
Yarmouth v. France (1887) 19 Q.B.D. 647,
I.R. Commrs v. Barclay Curle & Co. Ltd. (1969) 1 W.L.R. 675,
J. Lyons & Co. Ltd. v. Attorney-General (1944) Ch. 281
90 ATC 4592
Jarrold (Inspector of Taxes) v. John Good & Sons Ltd. (1963) 1 W.L.R. 214,
F.C. of T. v. ICI Australia Ltd. 72 ATC 4213; (1972) 127 C.L.R. 529 and
Macquarie Worsteds Pty. Ltd. v. F.C. of T. 74 ATC 4121.
The Tribunal cited, inter alia, the following comments of Mahoney J. in the last-mentioned case, at p. 4125:
``To be plant, a thing of the kind here in question must be more than mere setting for the taxpayer's operations; but if it is, the question still remains whether its relationship to the operations is such that it should be held to be within the meaning of the term.
Where the question has been whether buildings, structures or the like, or parts of them, constitute plant, the process of decision appears generally to have been, not of deriving the decision merely by deduction from a verbal formula or test, but of deciding whether the function performed by the thing is so related to the taxpayer's operations or special that it warrants it being held to be plant. There does not appear to have been evolved any formula of words to describe the relationship exhaustively.''
His Honour's exposition accords with the above authorities and with the careful examination of the issue made by Lord Wilberforce and by Lord Lowry in
I.R. Commrs v. Scottish & Newcastle Breweries Ltd. (1982) 1 W.L.R. 322 (``Scottish & Newcastle Breweries'').
Counsel for the Commissioner therefore submitted that the Administrative Appeals Tribunal had correctly understood the law and, if any error had been made, which he submitted had not, the error must have been one of fact.
The word ``plant'' is no longer used in sec. 54 in just its ordinary or common sense. As Lord Wilberforce said in Scottish & Newcastle Breweries at p. 324:
``The word `plant' has frequently been used in fiscal and other legislation. It is one of a fairly large category of words as to which no statutory definition is provided (`trade', `office', even `income' are others), so that it is left to the court to interpret them. It naturally happens that as case follows case, and one extension leads to another, the meaning of the word gradually diverges from its natural or dictionary meaning. This is certainly true of `plant'. No ordinary man, literate or semi-literate, would think that a horse, a swimming pool, moveable partitions, or even a dry-dock was plant - yet each of these has been held to be so: so why not such equally improbable items as murals, or tapestries, or chandeliers?''
Nevertheless, whether something is ``plant'' is not primarily a question of law, though it involves an understanding of the law. Such a decision is primarily one of fact and degree, for the fact-finding tribunal to make. In Scottish & Newcastle Breweries at p. 327, Lord Lowry, with whom Lord Salmon, Lord Fraser and Lord Bridge agreed, said:
``For present purposes, my Lords, I might be permitted to repeat in a slightly condensed form what I said on an earlier occasion in
Schofield v. R. & H. Hall Ltd. (1975) N.I. 12, a case which was also concerned with plant: (1) It is a question of law what meaning is to be given to the word `plant', and it is for the courts to interpret its meaning, having regard to the context in which it occurs. (2) The law does not supply a definition of plant or prescribe a detailed or exhaustive set of rules for application to any particular set of circumstances, and there are cases which, on the facts found, are capable of decision either way. (3) A decision in such a case is a decision on a question of fact and degree and cannot be upset as being erroneous in point of law unless the commissioners show by some reason they give or statement they make in the case stated that they have misunderstood or misapplied the law in some relevant particular. (4) The commissioners err in point of law when they make a finding which there is no evidence to support. (5) The commissioners may also err by reaching a conclusion which is inconsistent with the facts which they have found. I would also refer to the classic statement of Lord Radcliffe in
Edwards v. Bairstow (1956) A.C. 14, 36.''
Cole Brothers Ltd. v. Phillips (Inspector of Taxes) (1982) 1 W.L.R. 1452.
In the present case, in part because the provision was not brought to its attention, the
90 ATC 4593
Tribunal did not advert to the terms of sec 54(2)(a) which provide:
``(2) In this section, `plant' includes -
- (a) animals used as beasts of burden or working beasts in a business other than a business of primary production, and machinery, implements, utensils and rolling stock;''
(the emphasis is mine).
As can be seen, sec. 54(2)(a) extends the meaning of ``plant'' to include ``machinery''. Machinery is depreciable whether or not it forms an integral part of a building or is a part of the setting in which business is carried on. The depreciation rates set out in ¶32-250 of the CCH Australian Federal Tax Reporter therefore include rates for air-conditioning plants, hot water services, lifts and elevators and the machinery and other moving parts of escalators. In this respect, the Australian legislation is analogous to that of the United Kingdom which has traditionally provided for capital allowances in respect of machinery and plant. See Pinson on Revenue Law, 7th ed., para. 13-01.
Counsel for the Commissioner contended that, both in the United Kingdom and in this country, the principles which distinguish between ``plant'' on the one hand and a building constituting the setting in which business is carried on, on the other, apply equally to the term ``machinery''. I do not understand this to be so in either jurisdiction. The word ``machinery'' has a meaning and an effect additional to that of the word ``plant''. No doubt, both words must be read and applied in the context in which they appear. Before the Tribunal, counsel for Carpentaria Transport relied upon observations such as those by Donovan L.J. in Jarrold v. John Good & Sons Ltd. (supra) at p. 223 that:
``The heating installation of a building may be passive in the sense that it involves no moving machinery, but few would deny it the name of `plant'. The same thing could no doubt be said of many air conditioning and water softening installations.''
But prima facie, in both jurisdictions, if the subject item is machinery, then it is depreciable.
The Administrative Appeals Tribunal did not consider whether the motorised roller shutter doors, which principally comprised electric motors and moving parts, were plant in this sense and thus depreciable. Accordingly, there was an error of law in its decision. It is not for this Court to express its own view upon the issue. It is sufficient that there was an issue to be determined and that that issue was crucial to the overall concept of depreciable plant as defined in sec. 54 of the Act. Counsel for Carpentaria Transport cannot be taken to have conceded before the Tribunal that the motorised roller shutter doors were not machinery. Counsel emphasised their moving or functioning characteristics. What occurred was simply that the Tribunal and counsel failed to turn their attention to a part of the statutory provision that was, in the circumstances of the case, fundamental to the decision to be taken. The Tribunal's decision therefore involved an error of law. See
Kuswardana v. Minister for Immigration & Ethnic Affairs (1981) 35 A.L.R. 186.
Accordingly, the decision under review must be set aside and the matter remitted to the Administrative Appeals Tribunal to be heard and decided again either with or without the hearing of further evidence.
The Tribunal also rejected an investment allowance on the footing that the roller shutter doors were not plant or articles. See the definition of ``eligible property'' in sec. 82AQ(1) of the Act. Therefore this aspect of the decision will have to be reconsidered by the Tribunal.
Another issue considered by the Tribunal in this respect arose out of the terms of sec. 82AA(1), which inter alia excluded the allowance unless the unit of eligible property was used wholly and exclusively by the taxpayer for the purpose of producing assessable income otherwise than by leasing it and otherwise than by granting to other persons rights to use the eligible property.
There was evidence before the Tribunal that Carpentaria Transport had made a part of the warehouse available to another company, Easter Ltd., for the storage of its goods. It appears that Carpentaria Transport effected all the relevant transport for Easter Ltd. but that Easter Ltd. occupied and operated a part of the premises as a warehouse for its goods. The roller doors were operated by the employees of Carpentaria Transport but the argument put for the Commissioner was that, as Easter Ltd. had
90 ATC 4594
a right to use a part of the building, it also had a right to use the roller shutter doors or some of them and thus eligibility was excluded by the provisions of sec 82AA(1)(a)(ii)(C).
The Administrative Appeals Tribunal held that, on the facts before it, Carpentaria Transport used the roller shutter doors for the purpose of producing assessable income, that it had the exclusive use of those doors and did not grant to any other person, including Easter Ltd., the right to use them. When the whole matter is reconsidered by the Administrative Appeals Tribunal, it will be open to the Tribunal to re-examine this conclusion. I express no view on it. There may indeed be additional evidence on this as well as on other issues.
As to costs, I am of the view that, as the applicant did not bring the terms of sec. 54(2) to the Tribunal's attention at the hearing and, indeed, did not raise the provision in the original notice of appeal to this Court, the respondent Commissioner should pay only 50% of the applicant's costs of this appeal.