Re Roderick John Thomas Mclennan v the Commissioner of Taxation [1989] FCA 548; 90 Atc 4047 (22 December 1989)

FEDERAL COURT OF AUSTRALIA

Re: RODERICK JOHN THOMAS McLENNAN
And: THE COMMISSIONER OF TAXATION
No. G70 of 1989
FED No. 811
Income Tax
[1989] FCA 548; 90 ATC 4047

COURT

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Davies(1), Spender(2) and Hill(3) JJ.

CATCHWORDS

Income Tax - appeal from decision of Administrative Appeals Tribunal disallowing deduction to cane grower for levy payment made to Co-operative - taxpayer member of Co-operative - weir construction project funded by advance from Co-operative to Government repayable over four years interest free - levy exacted by Co-operative upon members to meet costs of financing capital advance - taxpayer issued with shares in Co-operative upon receipt of levy payment - whether payment of a revenue or capital nature - whether levy payment deductible as interest - whether payment deductible under s.75B Income Tax Assessment Act 1936.

Income Tax Assessment Act 1936: ss.51(1), 75B, 90.

Administrative Appeals Tribunal Act 1975: s.44(3)(b)

Primary Producers' Organisation and Marketing Act (Qld) 1926-1981: ss.30(8), 30(8A).

HEARING

BRISBANE
22:12:1989

Counsel and Solicitors P Lyons QC and P Favell
for Applicant: instructed by C J Cooper & Associates

Counsel and Solicitors R I Hanger QC and P Bickford

for Respondent: instructed by Australian Government Solicitor

ORDER

1. The appeal be allowed.
2. The decision of the Administrative Appeals Tribunal
be set aside and in lieu thereof it be ordered that
the appellant's objection to the assessment to tax
of his income for the year ended 30 June 1981 be
allowed and that the appellant's income tax
assessment for year of income ended 30 June 1981 be
remitted to the respondent for re-assessment in
accordance with these reasons.
3. The respondent pay the costs of the appellant.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

I have had an opportunity to peruse the reasons prepared by Mr Justice Hill.

2. I agree with the views expressed by his Honour and with the orders which he proposes.

I concur in the judgement of Hill J.

The appellant, Mr Roderick John Thomas McLennan, appeals against the decision of the Taxation Appeals Division of the Administrative Appeals Tribunal constituted by Deputy President Dr P Gerber, affirming the objection decision of the respondent, the Commissioner of Taxation, in relation to the assessment of the appellant for the year of income ended 30 June 1981. The appeal was heard by a Full Court pursuant to the provisions of s.44(3)(b) of the Administrative Appeals Tribunal Act 1975 (Cth) having regard to the number of other taxpayers said to have made claims for deductions in circumstances similar to those of the taxpayer and those deductions having been disallowed, whose objections await the outcome of the present appeal.

2. The matter proceeded before the Tribunal on the basis of an agreed statement of facts from which the following relevant facts may be extracted.

3. The taxpayer was a member of a partnership comprising four members and known as "McLennan Brothers & Company" which partnership carried on a business of cane farming on lands assigned to the Invicta Sugar Mill.

4. In approximately 1971 the Queensland Government declared its intention to build two water storages on the Haughton River for the purpose of providing irrigation water for sugar cane farms in the general vicinity of those water storages, all of which farms were assigned to the Invicta Sugar Mill. The first water storage was completed in 1977 and there was no real prospect of the second storage being built within a reasonable time after that. In late 1980 the Invicta Mills Suppliers' Committee ("IMSC") acting for the cane growers in the area made representations to the government requesting that construction of the second water storage be expedited possibly with financial assistance from a levy raised from growers.

5. An initial proposal was put by the Queensland Government to the growers in December 1980 to the effect that if the growers contributed $1.55 million to the project by way of an advance to the Government to be repaid over a period of four years and bore the cost of financing the capital cost of the storage area, construction on the project would commence in mid-1981. That proposal was not however acceptable to the growers and by a letter dated 18 February 1981 a further proposal was advanced by the Government on substantially similar terms save that the Queensland Water Resources Commission agreed to make concessions to the growers by way of rebating in full the metering charge proposed to be implemented as from 1 July 1981 in the 1981-2 and 1982-3 financial years, limiting the water charge to be raised in the 1983-4, 1984-5 and 1985-6 financial years but with the water charge in subsequent years being increased in proportion to the final cost of the project. That revised proposal was accepted by the growers.

6. The IMSC did not have power to enter into an arrangement such as that proposed by the Government and agreed to by the growers and it was decided to establish the Haughton Weir Co-Operative Association Limited ("HWCAL"). Regulations were made pursuant to the Primary Producers' Organisation and Marketing Act (Qld) 1926-1981 empowering the IMSC to make levies upon growers of sugar cane who supplied the Invicta Sugar Mill. Pursuant to the provisions of s.30(8)(d) and (e) of that Act (since repealed by Act No 57 of 1987 and replaced by s.30(8A)) regulations could be made empowering, inter alia, any mill suppliers' committee to make general or particular levies. A general levy was to be used for "administrative purposes". A particular levy could be made:

"on any section of growers supplying cane to a mill
... for any purpose affecting such section of
growers: Provided always that the sums raised by
such levy shall be expended only in the interests
of the section paying such levy."

Before a particular levy was made a poll was to be held and if the majority of votes was against the making of the levy in question it was not to be made. The regulations could prescribe the methods of recovery or collection of levies.

7. Regulation 1488 made on 11 June 1981 empowered, subject to the consent of the Queensland Cane Growers' Council and the holding of a poll, the making of two levies. The first was a levy on growers of cane who supplied sugar cane to the Invicta Sugar Mills and whose names were set out in the first schedule in amounts set opposite their names in that schedule. It also empowered the making of a levy on growers of sugar cane who supplied sugar cane to the same mill from the lands described in the second schedule at a rate of 72 cents per tonne of cane on all cane supplied to that mill from those lands in the season concluding on 28 February 1982 and at the rate of 17 cents per tonne of cane on all cane supplied to that mill in the season which concludes on 28 February 1983. The levy was to be paid to the Committee from moneys held from time to time by the owners of the Invicta Sugar Mill to the credit of the persons liable to pay the levy. The partnership, of which the appellant was a member, was referred to in the first schedule to the regulations and the amount of the levy stipulated in that schedule to be paid by the partnership was $6,980.10.

8. The case does not indicate whether the lands described in the second schedule also included land on which the partnership members cut cane. It may be that they did because copies of the growers' payment advice from the mill to the partnership for the years of income ended 30 June 1982 and 1983 respectively showed entries in each year under the heading "Haughton River Weir Levy". These payments were not of course before the Tribunal.

9. Regulation 1488 provided that the proceeds of the levies were to be expended as follows:

"(a) By subscribing the proceeds of such levies to
the capital of an Association to be formed
pursuant to the provisions of the Primary
Producers Co-operative Association Act
1923-1981 the principal objects of which
Association shall be: To contribute to the
cost of construction by the Commissioner of
Water Resources of a second weir on the
Haughton River: for this purpose to borrow
money; to pay to the lenders of such money
interest thereon: to enter into agreements or
arrangements with the Commissioner of Water
Resources whereby the money so borrowed
(excluding interest thereon) shall be repaid
to the lenders thereof by the Commissioner of
Water Resources; and to obtain from the
Government of the State of Queensland a
Guarantee to the lenders as aforesaid of the
repayment of the monies so borrowed and the
repayment of interest thereon: and no other
objects save such as are necessarily
incidental or ancillary to such principal
objects.
(b) By utilizing any sum of money remaining after
completion of the said weir and after
finalization of all the financial and other
obligations of the Association in the
interests of those growers who at that time
are suppliers of sugar cane to the Invicta
Sugar Mill from the lands described in the
Second Schedule hereto: Provided that should
construction of the aforesaid weir for any
reason whatsoever not be proceeded with or
should it prove impossible or impracticable
for any reason whatsoever for the Association
to contribute to the cost of construction
thereof in accordance with its objects then
any levy monies in the hands of the Invicta
Mill Suppliers' Committee together with any
monies realized by the Committee pursuant to
the occurrence of the abovementioned events
shall be repaid to those growers who have paid
monies pursuant to this Regulation in the same
proportion as monies have been paid by such
growers pursuant hereto. ..."

A breach of the regulation gave rise to a penalty not exceeding $10.

10. A poll was presumably held and not rejected by a majority of the persons liable to pay the levy. As a result amounts were deducted by the Invicta Sugar Mill from cane payments due to the partnership on 28 May and 4 June 1981, the total of which was $6,980.10. The total levy imposed in that year on the growers affected by it was $351,000.

11. The Haughton Weir Co-Operative Association Limited was incorporated on 19 June 1981. Its objects as set out in its constituent documents were expressed as follows:

"(3)The objects of the Association are to
contribute to the cost of construction by the
Commissioner of Water Resources of a second
weir on the Haughton River and for this purpose
(a) to borrow money;
(b) to pay to the lenders of such money
interest thereon;
(c) to enter into agreements or arrangements
with the Commissioner of Water Resources
whereby the money so borrowed (excluding
interest thereon) shall be repaid to the
lenders thereof by the Commissioner of
Water Resources; and
(d) to obtain from the Government of the
State of Queensland a Guarantee to the
lenders as aforesaid of the repayment of
the moneys so borrowed and the repayment
of interest thereon.
(4) The Association shall have no other objects
save those as aforesaid (hereinafter called
"the main objects") provided always that for
the purpose of carrying out and giving effect
to the main objects and for no other purpose
whatsoever the Objects of the Association are:-
(a) To acquire by lease, purchase or
donation, and to hold and use, any
property for the better carrying out of
the main objects.
(b) To raise money on loan from the Governor
in Council, the Treasurer, the
Corporation of the Agricultural Bank or
any bank or financial institution or
person for any of its main objects and
for that purpose to mortgage or assign
property of the Association.
(c) To acquire and purchase any real or
personal property for cash, on terms or
entirely on credit, and to secure the
purchase money by mortgage, mortgage
debenture, bill of sale, stock mortgage,
lien, or charge of (sic), on or over the
property so purchased of any portion
thereof, and of, on or over any other
assets of the Association including its
book debts and uncalled capital (if any).
(d) To apply to the Governor in Council for
approval of the main objects if necessary.
(e) To lease, hire, rent or otherwise use the
assets of the Association for the purpose
of gaining income for the Association to
assist in repayment in whole or in part
of moneys borrowed by the Association and
the payment of interest in whole or in
part accrued or accruing thereon.
(f) To do all such other things as are
incidental or conducive to the
successful attainment of the main objects
of the Association."

12. It was provided that the capital of the Co-operative was to be raised by receiving the proceeds of the levy and shares of a nominal value of one dollar each were, upon the receipt of the proceeds of the levy, to be issued to members in such quantities as would represent the amount received by the Committee pursuant to the levy from each member. There was no provision in the constituent rules for there to be any payments, by way of dividends, to members of the Co-operative but it was provided that in the event of the winding up of the Co-operative the net proceeds of winding up were to be distributed among members in proportion to their shareholding.

13. On 3 February 1982 the sum of $351,000 was paid by the Committee to the Co-operative. The Co-operative borrowed the amount of $1.55 million in accordance with the proposal from a merchant bank, Hill Samuel Australia Limited, and paid this amount to the Commissioner for Water Resources on 2 March 1983. The sum of $351,000 received by the Co-operative as a result of the levy was applied by it in meeting interest charges on that borrowing. Although it is not made clear in the agreed statement of facts, there was a small surplus in the Co-operative as the moneys raised by the levy were invested pending the moneys being expended on interest. The Commissioner for Water Resources proceeded with the construction of the water storage, the contractors being paid by the Commissioner and, completion being somewhat behind schedule, the water storage was opened in June 1983.

14. In calculating the net income of the partnership for the year of income pursuant to s.90 on the Income Tax Assessment Act 1936 (Cth) ("the Act") the partnership claimed as an allowable deduction the amount of $6,980 representing the levy paid by it in the year of income. This deduction was disallowed by the Commissioner and as a result the individual interest of the appellant in the net income of the partnership was increased by the amount of $1,745. The appellant duly objected against this and other items of adjustment, not now relevant, claiming that the amount of the levy was an allowable deduction in determining the net income of the partnership under s.51(1) of the Act or alternatively that the amount of the levy was an allowable deduction under s.75B of the Act. The Commissioner disallowed the objection which was then referred to the Administrative Appeals Tribunal.

15. The Tribunal found on the basis of the agreed statement of facts that: "this taxpayer's contribution became part of this fund and was used to pay the interest on the money borrowed to pay for the (accelerated) construction of additional water storage pending the availability of Government funding." The Tribunal continued:

"The evidence leads me to conclude (i)that but for
the combined action of the cane growers assigned to
this mill, the water storage would not have been
built when it was; (ii)that none of the moneys
raised by way of levy (as distinct from the money
borrowed from the merchant bank) was expended on
the construction of the weir; and (iii)that the
weir was designed to increase the income of the
contributors."

However the Tribunal regarded the levy as being used for payment of shares in the Co-operative and expressed itself as bound to hold, having regard to the juristic classification of the legal rights secured by the persons upon whom the levy was raised, that the amount of the levy was an amount of capital or was of a capital nature and so not deductible under s.51(1). The Tribunal also rejected a submission on behalf of the taxpayer under s.75B of the Act holding that the expenditure was incurred by the partnership in subscribing to the share capital of the Co-operative rather than on the construction of a weir. The Tribunal concluded:

"This taxpayer has the misfortune to fail on a
technicality. Had the Committee been empowered to
finance the construction of the weir without the
necessity of having to resort to the artifice of a
co-operative, the taxpayer's contribution to the
interest on the borrowed capital would have been an
allowable deduction."

16. Before us the appellant submitted that the amount of the levy should be seen as "interest" and as such, prima facie, an allowable deduction, and that the fact that the transaction was carried out in a way which resulted in the issue to the appellant of shares in the Co-operative did not change the character of the payment. For the Commissioner, it was submitted that the object of the levy was to buy shares for the persons required to pay the levy and that the acquisition of the shares was an acquisition of a capital asset not an allowable deduction under s.51(1) of the Act.

17. For the Commissioner it was argued that s.75B of the Act, the text of which appears later in this judgment could have no application because the only expenditure on the construction of a weir was the expenditure of the Co-operative not of the taxpayer and in any event that none of the moneys received by way of levy had been expended on construction of the weir. Rather they had been all spent on paying interest on moneys borrowed.

18. With respect to the submissions addressed to s.51(1) I find neither of them particularly helpful. The Commissioner's submission represents a triumph of form over substance. To equate the present circumstances to an investment of shares in a company for the benefit of the congeries of rights which ownership of shares in a company carries with it, would be a misleading half truth. Putting aside the interest that may have been earned by the Co-operative on the moneys pending their being expended, the shares in the Co-operative were entirely worthless. Once the moneys had been expended by way of payment of interest to the merchant bank and the principal moneys repaid by the Government and thence to the merchant bank, the Co-operative would have no assets at all; its objects would have been exhausted and it would of necessity go into liquidation. Notwithstanding the submissions of the Commissioner who pointed to the fact that the Co-operative had powers permitting it, for example, to expend moneys on the acquisition of land, it is clear from a perusal of the objects of the Co-operative that these were limited to its role in the financing of the second weir on the Haughton River. Its powers were merely to give effect to that object and once that object was carried out its substratum was gone.

19. As the decision of the High Court of Australia in Cliffs International Inc v. Commissioner of Taxation (1978-9) 142 CLR 140 makes clear, the mere fact that an outgoing is applied in the purchase of shares will not necessitate the conclusion that the outgoing was an outgoing of capital. The law is not so blinkered by form as to ignore entirely the substance of a transaction. In Cliffs International Inc the appellant agreed to purchase shares in Basic Materials Co Pty Limited, which company had as assets certain temporary reserves under the provisions of the Mining Act 1904 (WA). The purchase price was to be an initial lump sum payment together with deferred payments equal to an amount per ton of iron ore mined and transported from the reserves. Upon the appellant acquiring the shares in Basic that company was wound up and a liquidator appointed, its rights under certain agreements with the State of Western Australia were novated to the appellant, who exploited those rights by arrangements with a consortium of companies to mine the iron ore contained in the temporary reserves and under these arrangements became entitled to receive from the consortium a royalty per ton of ore mined, transported and sold by the consortium. In this Court the appellant's claim for an allowable deduction failed because the outgoings were seen substantially as payment for shares and therefore as payment for a capital asset (see [1977] FCA 23; (1977) 31 FLR 276 at 292-3 per Bowen CJ, at 302 per Franki J; Brennan J on the other hand saw the deferred payments as consideration for the acquisition of the net assets of Basic and therefore as of a capital nature).

20. Before the High Court, although differing views were expressed as to whether the deferred payments were on income or capital account, the fact that the amounts in question were expressed to be consideration for the acquisition of shares was regarded as of little importance. Barwick CJ expressed the view in any event that the payment could not be seen as part of the purchase money for the shares because the shares were acquired before the payments were made. Stephen J, who formed part of the minority, dismissed the submission that the deferred payments should be treated as part of the purchase price of the shares and for that reason capital at p 158 as follows:

"Of course, to regard what was acquired as merely
shares in Basic is to concentrate upon form to the
exclusion of substance. As Dixon J pointed out in
Hallstroms Pty Ltd v. Federal Commissioner of
Taxation [1946] HCA 34; (1946) 72 CLR 634, at p 648, in a passage
subsequently much cited both in this Court and by
their Lordships:
'What is an outgoing of capital and what is an
outgoing on account of revenue depends on what
the expenditure is calculated to effect from a
practical and business point of view, rather
than upon the juristic classification of the
legal rights, if any, secured, employed or
exhausted in the process.'
To look only at the acquisition of shares is to
ignore that which was the real advantage which,
from a practical and business point of view, was
acquired by the exercise of the option. The basis
of calculation of the deferred payments, as well as
much else in the agreement and in the evidence as a
whole, makes it clear that although it was the
issued capital of Basic that was the express
subject matter of the option, what gave it its
value and made it a desirable asset was the bundle
of rights, both existing and prospective, which
Basic enjoyed, or was in a position to enter into
the enjoyment of, if iron ore deposits in the
temporary reserves proved to be commercially
significant."

21. The remaining dissentient, Gibbs J was of the view that the same conclusion was reached whether the deferred payments were seen as consideration for the shares or the rights and possibilities inherent in them. In either case the deferred payments were made to acquire an asset or advantage of an enduring character and were thus capital. The remaining member of the majority of the High Court effectively ignored the fact that the moneys in question were consideration for the purchase of shares and looked to the substance of the arrangement.

22. In the circumstances of the present case the formation of the Co-operative and the allocation by the Co-operative of shares to persons who participated in the levy was but a form or mechanism for the carrying into effect of the arrangement between the cane growers and the Government. The fact therefore that shares in the Co-operative were allocated to cane growers proportionate to the amount of the levy imposed upon them will not in such a case be determinative of whether the amounts of the levies paid were an allowable deduction to them. A surer starting point in determining whether the outgoings in the present case are on income or capital account is the guidance offered by Dixon J, as his Honour then was, in Sun Newspapers Ltd v. Federal Commissioner of Taxation [1938] HCA 73; (1938) 61 CLR 337 and the subsequent exposition of the tests there set out in the judgment of the Privy Council in BP Australia Ltd v. Commissioner of Taxation (1966) AC 224.

23. In the well known and oft cited passage referred to by Lord Pierce as "a valuable guide to the traveller in these regions" Dixon J said at 363:

"There are, I think, three matters to be
considered, (a) the character of the advantage
sought, and in this its lasting qualities may play
a part, (b) the manner in which it is to be used,
relied upon or enjoyed, and in this and under the
former head recurrence may play its part, and (c)
the means adopted to obtain it; that is, by
providing a periodical reward or outlay to cover
its use or enjoyment for periods commensurate with
the payment or by making a final provision or
payment so as to secure future use or enjoyment."

24. In looking at the character of the advantage sought regard may be had to whether the expenditure has, as its purpose or result, the bringing into existence of some asset or advantage of a lasting character which will enure for the benefit of the business as distinct from expenditure incurred in the ordinary process of operating the business. Such a distinction is often drawn by reference to the distinction between the business entity, structure or organisation itself from which profits are earned and the process by which the organisation operates to obtain its regular returns by means of regular outlays (cf per Dixon J in Sun Newspapers at 359). Expenditure having the purpose or result of bringing into existence "an asset or an advantage for the enduring benefit of a trade" to use the words of Viscount Cave in British Insulated & Helsby Cables Ltd v. Atherton (1926) AC 205 at 213 will be on capital account whereas recurrent expenditure such as interest, rent, rates on premises producing income and the like will clearly be on revenue account. As Dixon J said in the Texas Company (Australasia) Ltd v. Federal Commissioner of Taxation [1940] HCA 9; (1939-40) 63 CLR 382 at p 468:

"Some kinds of recurrent expenditure made to secure
capital or working capital are clearly deductible.
Under the Australian system interest on money
borrowed for the purpose forms a deduction. So
does the rent of premises and the hire of plant.
No doubt the difficulty of assigning an outgoing to
capital or income is often very great."

25. Such recurrent outgoings can be seen as necessarily made in the normal course of the continuance and maintenance of the business as an enterprise conducted for the purpose of profit: see per Latham CJ in the Texas case at p 427.

26. The same idea was expressed by Dixon J in Hallstroms Pty Ltd v. Federal Commissioner of Taxation [1946] HCA 34; (1946) 72 CLR 634 at p 647 where his Honour referred to:

"the general consideration that the contrast
between the two forms of expenditure corresponds to
the distinction between the acquisition of the
means of production and the use of them; between
establishing or extending a business organization
and carrying on the business; between the
implements employed in work and the regular
performance of the work in which they are employed;
between an enterprise itself and the sustained
effort of those engaged in it."

27. The present is not a case where the appellant expended money to acquire some new income producing asset. The shares in the Co-operative were not acquired for the purpose of thereafter deriving any dividend or for that matter liquidation distribution that might be received from them. Nor can it be said that the applicant acquired a weir as a result of the expenditure; that weir was always intended to be and did remain the property of the Queensland Government. The advantage from a practical and business point of view which the levy was calculated to effect was the acceleration of the building of the second weir, providing no doubt a greater degree of water storage upon which the appellant's business and the businesses of all other suppliers to the Invicta Mill depended. While the fact that the payment of the levy might add value to the lands of owners served by the storage area is relevant, that in itself, while pointing in the direction of capital, will not be determinative. For example, councils are permitted by the Local Government Act 1919 (NSW) s.120 to levy special rates upon particular landowners. Those rates may be used for specified purposes such as particular road projects and the like. The fact that a landowner whose land is used for the purpose of gaining or producing assessable income is levied a special rate for some road works which could add value to his property, will not require the conclusion that such a special rate is an outgoing of a capital nature.

28. In considering this first matter mentioned by Sir Owen Dixon, assistance may be gained from a consideration whether the expenditure is recurrent or whether it is final or made "once and for all". The idea of "recurrence" is subject to some ambiguity. Expenditure need not in fact recur each year to be within the category of recurrent expenditure. The concept of recurrence was explained by Dixon J in Sun Newspapers as follows at p 362:

"But the idea of recurrence and the idea of
endurance or continuance over a duration of time
both depend on degree and comparison. As to the
first it has been said it is not a question of
recurring every year or every accounting period;
but 'the real test is between expenditure which is
made to meet a continuous demand, as opposed to an
expenditure which is made once for all' (per
Rowlatt J., Ounsworth v. Vickers Ltd (1915) 3 KB at
p 273; 6 Tax Cas 671 at 675). By this I
understand that the expenditure is to be considered
of a revenue nature if its purpose brings it within
the very wide class of things which in the
aggregate form the constant demand which must be
answered out of the returns of a trade or its
circulating capital and that actual recurrence of a
specific thing need not take place or be expected
as likely. Thus, in Anglo-Persian Oil Co Ltd v.
Dale (1932) 1 KB 124; 16 Tax Cas 253 the
establishment and reorganization of agencies formed
part of the class of things making the continuous
or constant demand for expenditure, but the given
transaction was of a magnitude and precise
description unlikely again to be encountered.
Recurrence is not a test, it is no more than a
consideration the weight of which depends upon the
nature of the expenditure."

29. The expenditure in Anglo-Persian Oil Co Ltd v. Dale was in an amount of 300 pounds to terminate an agency agreement for the management of a business in Persia and the East for a term of ten years. The agreement was an onerous one and the commissions then being earned by the agents were much in excess of the amounts anticipated at the time the agreement was entered into. It was held that the expenditure was not made with a view to bringing into existence some asset or advantage for the enduring benefit of the trade but rather was expenditure leading to economy and saving in working expenses and produced advantages and benefits of a revenue rather than a capital character. Although the phrase is one itself susceptible of ambiguity, the expenditure was properly payable out of circulating rather than out of fixed capital, thus on revenue account.

30. It is obvious that levies under the Primary Producers Organisation and Marketing Act (Qld) 1926-1981, whatever the particular purpose of the levy may be, form part of the ordinary or constant demands which must be answered out of the returns of the trade of a cane grower, just like rates, water levies and the like and are rather of the character of recurrent expenditure than expenditure made once and for all for the purpose of obtaining an advantage of an enduring nature. Like the Privy Council in the BP Australia Ltd case I would take a broad view of the general operation under which the expenditure was incurred (see at p 267). When one views the business of a cane grower overall, the levies made by Mill Suppliers Committees on growers form part of the continuous demands in the trade and although not themselves recurrent in an identical form share in the language of the Privy Council "the same quality of recurrence possessed by matters 'connected with the ever-recurring question of personnel.'"

31. The second matter, closely related to the first is the manner in which the advantage sought is to be used, relied upon or enjoyed. Here the benefit was to be used by the cane growers in their continuous and recurrent activity of growing cane for sale. The levy formed part of the ordinary outgoings of the farmer in its business. While neither before us nor before the Tribunal was any emphasis placed upon the fact that the payment of the levy relieved the farmers of some of their obligations for payment of water over the ensuing years, this fact also would point to the outgoing as being on revenue account.

32. The final matter to which Sir Owen Dixon directed attention is the means adopted to obtain the benefit or advantage, particularly the method of payment. This matter does not in the present case point clearly in either direction. The payment made was not a current payment made annually over the period of benefit but in the circumstances of the present case does not, in my view, have a once and for all quality.

33. In the end, as the Privy Council pointed out in BP Australia Ltd the application of a rigid test will not necessarily provide the right solution. "It is a common sense appreciation of all the guiding features which must provide the ultimate answer". The process is one of balancing all of the considerations looking at the matter from "a practical and business point of view".

34. The present is a case where the levy was not incurred to alter the framework within which the cane producing activities, upon which the appellant relies for the production of income, are for the future to be carried on; it is merely the taking of a step as part of the activities within that framework. Cf. the joint judgment of Kitto, Taylor and Menzies JJ in Foley Bros Pty Ltd v. Federal Commissioner of Taxation (1965) 13 ATD 562 at 563 relied upon by Burchett J in Federal Commissioner of Taxation v. Ampol Exploration Ltd (1986) 86 ATC 4859 at 4884. The levy payments are therefore on revenue rather than capital account.

35. I should say that I do not however think it is correct to say that the payments made by the appellant were interest. No doubt interest is the price paid for the use of money; it is an amount paid in order to obtain the use of capital. Cf. per Latham CJ in Texas Co (supra) at p 430. No doubt if a taxpayer carries on business and incurs a liability for interest in carrying on that business being incidental and relevant to the operations or activities regularly carried on for the production of income, that interest will be an allowable deduction. The authorities supporting the deductibility of interest are dealt with in detail in the judgment of Lockhart J in Federal Commissioner of Taxation v. Total Holdings (Aust) Pty Ltd [1940] HCA 9; (1979) 79 ATC 4279 with which judgment Northrop and Fisher JJ agreed. But it would be wrong to characterise the payment in the present case as being interest of the partnership of which the appellant was a member. So to do would be to ignore the separate legal personality of the Co-operative.

36. No doubt when the amounts representing the funds obtained by virtue of the levy were expended by the Co-operative they were expended as interest but it does not follow that the amounts in question were, from the point of view of the growers, interest. However, the fact that the funds made available to the Co-operative by force of the levy were used by the Co-operative not for the purpose of constructing the weir itself but merely for the purpose of funding the interest liability of the Co-operative on its borrowing, may assist the conclusion that the outgoings in question should be seen as on revenue rather than capital account. It may be that a similar result would have followed even if the levy had been applied by the Co-operative in meeting some of the capital cost of the weir in the event that the Queensland Government had required growers to subsidize part of that cost. It is however unnecessary to decide that question in the present case.

37. Since the outgoings in question are of a revenue and not of a capital nature, the issue of whether the outgoings were deductible under s.75B does not arise. That section permitted a deduction for expenditure of a capital nature incurred on or after 14 April 1980 and before 20 September 1985 by a taxpayer who carries on a business of primary production on land in Australia, being expenditure incurred -

"(a) ... on the construction, acquisition or
installation of plant or a structural
improvement for the purpose of conserving or
conveying water for use in carrying on that
business on that land; or
(b) ... on the construction, acquisition or
installation of an extension to plant or to a
structural improvement for the purpose of
conserving or conveying water for use in
carrying on that business on that land."

38. Even if the expenditure in question had been of a capital rather than of a revenue nature it would be difficult to see how the expenditure could qualify for deduction under s.75B. The expenditure was expenditure on a levy not expenditure on the construction, acquisition or installation of anything. Even if it were possible to look at the character of expenditure in the hands of the Co-operative to determine the character of the expenditure in the hands of the taxpayer, the expenditure was not itself expenditure on the construction, acquisition or installation of the water storage facility but merely expenditure in the nature of interest on funds borrowed to construct or install that facility. As such it would not qualify for deduction under s.75B. Cf. Robe River Mining Co Pty Ltd v. Federal Commissioner of Taxation (1989) 89 ATC 4606.

39. I would order that the appeal be allowed, that the decision of the Administrative Appeals Tribunal be set aside and in lieu thereof it be ordered that the appellant's objection to the assessment to tax of his income for the year ended 30 June 1981 be allowed, that the appellant's income tax assessment for year of income ended 30 June 1981 be remitted to the respondent for re-assessment in accordance with these reasons and that the respondent pay the costs of the appellant.