Re Commissioner of Taxation of the Commonwealth of Australia v Mount Isa Mines Ltd [1991] FCA 53; 91 Atc 4154/21 Atr 1294/98 ALR 623 28 FCR 269 (28 February 1991)

FEDERAL COURT OF AUSTRALIA

Re: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
And: MOUNT ISA MINES LTD
Nos. V G171 and G172 of 1990
FED No. 59
Income Tax
[1991] FCA 53; 91 ATC 4154/21 ATR 1294/98 ALR 623
28 FCR 269

COURT

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Sheppard(2), Pincus(1) and Ryan(1) JJ.

CATCHWORDS

Income Tax - Allowable deductions - mining activities - whether expenditure on construction of tailings dam and expenditure on demolition of structures no longer in use are allowable deductions under s.122A(1) or s.51 of Income Tax Assessment Act 1936 - whether expenditure on constructing a decline, as distinct from a shaft, is an allowable deduction under s.51(1) - distinction between underground mines and open cut mines - whether expenditure on provision of portable accommodation units for mineworkers creates entitlement to investment allowance under s.82AB, or whether s.82AA operates to exclude such allowance.

Commissioner of Taxation v Broken Hill Proprietary Co Ltd [1968] HCA 16; (1969) 120 CLR 240

Federal Commissioner of Taxation v Henderson (1943) 68 CLR 29

Dampier Mining Co Ltd v Commissioner of Taxation [1981] HCA 29; (1981) 147 CLR 408

Annalong Pty Ltd v Commissioner of Taxation [1972] HCA 45; (1972) 127 CLR 174

Robert Addie v Solicitor of Inland Revenue (1875) 2 SC 431 Coltness Iron

Co v Black (1881) 1 TC 287; (1881) 6 App Cas 315

Morant v Wheal Grenville Mining Co (1894) 3 TC 298

Bonner v Basset Mines (1912) 6 TC 146

Bean v Doncaster Amalgamated Collieries (1944) 171 LT 214

Denison Mines v Minister for National Revenue (1974) 49 DLR (3d) 450

Johns-Manville Canada Inc v The Queen (1985) 21 DLR (4th) 210

Federal Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 190

Federal Commissioner of Taxation v Whitfords Beach Pty Ltd [1982] HCA 8; (1982) 150 CLR 355

Tourapark v Commissioner of Taxation [1982] HCA 18; (1982) 149 CLR 176

HEARING

MELBOURNE
28:2:1991

ORDER

The appeal in matter No. VG172 of 1990 be allowed in part.

There be substituted for the orders made by Northrop J. in Matter No. VG2027 of 1987 on 23 May 1990 orders as follows:-
(i) the appeal be allowed in part

(ii) the decision of the Commissioner of Taxation with respect to
the objection relating to the year of income ended 30 June
1980 concerning the deductibility of the decline be set
aside and the matter remitted to the Commissioner for
reassessment in accordance with the reasons for judgment of
the Full Court.

The appeals and cross-appeal be otherwise dismissed.

There be no order for costs of the proceedings before Northrop J. or the

Full Court.

NOTE: Settlement and entry of orders is dealt with in O.36 of The Federal Court Rules.

DECISION

These are appeals and a cross-appeal against judgments given in this Court dealing with objections to income tax assessments relating to the tax years ended 30 June 1978 and 30 June 1980. There were before the primary judge for consideration eight distinct issues, six of which arise also in the appeal; as to the remaining two, the primary judge's decisions are not challenged.

2. The appeals and cross-appeal concern claims to deductions for expenditures made by the taxpayer, a mining company, in relation to activities of various sorts as carried on at Mount Isa in the State of Queensland and at two Western Australian mines. The six issues debated in this Court have no common theme, but their resolution depends principally upon the application to the facts of, first, s.51(1) of the Income Tax Assessment Act 1936 ("the Act"), secondly, the investment allowance provisions in Sub-Division B of Division 3 and thirdly, Division 10, which is a collection of sections relating to mining. There have been some significant changes in the relevant provisions since the end of the second year which falls for consideration, that is, since 30 June 1980; for convenience, however, the present tense will be used in discussing these provisions. In some important respects, the language is unchanged.

3. The appeals and cross-appeal, as argued, did not raise any significant factual disputes and, in substance, the primary judge's findings of fact were accepted. To resolve the factual issues before him, his Honour found it necessary to refer to the evidence in somewhat more detail than appears in these reasons. For present purposes, it is enough to set out the facts rather concisely, as the points needing determination are essentially matters of law or, at least, of application of the statute to given facts.

4. It is convenient to retain the numbering of the issues adopted in the reasons of the primary judge. Of the eight issues before his Honour, Nos. 2 and 8 no longer arise. Issue No. 1: No. 8 Tailings Retention Wall The first issue dealt with by the trial judge was the deductibility of the cost of a substantial earth and rock dam which was built to contain tailings. In essence the function of a tailings dam was described in evidence as follows. (Some more details relating to it are set out, where appropriate, below). The taxpayer's Mount Isa mining operations brought to the surface ores containing a small proportion of what will be called the desired elements - copper as to one mine, silver, lead and zinc as to another. The ores were then treated in order to extract material containing a higher proportion of the desired elements, leaving as a residue the "tailings" - material containing a very low proportion of the desired elements. Some of the tailings, consisting of the coarser particles, were disposed of down the mines to fill voids created by the mining operations, but the "fines", mixed with some water, were discharged to the tailings dam.

5. The fines contain chemicals likely to be harmful to the environment and that is one of the reasons why they cannot simply be dumped and left unconfined; preventing contamination of the environment, and particularly of ground water, by these chemicals may be said to be one of the purposes of such a dam. Another function which it serves is as a reservoir from which water may, from time to time, be extracted for use in the treatment process. Further, when dried out and consolidated, the accumulation of fines is a possible source of material from which, by more treatment, further quantities of the desired elements may be obtained.

6. The taxpayer succeeded under s.122A(1) of the Act as to the tailings dam and in this Court, again, principally relied upon that provision. It reads in part as follows:

"For the purposes of this Division, allowable capital expenditure of a
taxpayer is expenditure of a capital nature incurred by the taxpayer,

being-

(a) expenditure in carrying on prescribed mining
operations, including expenditure -
(i) in preparing a site for such operations;
(ii) on buildings, other improvements or
plant necessary for the carrying on by
the taxpayer of such operations;
(iii) in providing, or by way of contribution to
the cost of providing, water, light or power
for use on, or access to or communications
with, the site of prescribed mining operations
carried on, or to be carried on, by
the taxpayer; or
(iv) on housing and welfare;
(b) expenditure on plant for use primarily and
principally in the treatment of minerals obtained
from the carrying on by the taxpayer of prescribed
mining operations;
(c) expenditure on buildings or plant for use directly
in connexion with the operation or maintenance of
plant referred to in the last preceding paragraph,
or buildings or other improvements for use directly
in connexion with the storage (whether before or
after treatment) of minerals in relation to the
operation of such plant;
(d) expenditure on acquiring a mining or prospecting
right or mining or prospecting information from
another person, to the extent only of the amount of
the expenditure that is specified in a notice under
the next succeeding section duly given to the
Commissioner by the taxpayer and that other person
..."
The expression "prescribed mining operations" is defined in
s.122(1) as follows:
"'prescribed mining operations' means mining operations on
a mining property in Australia for the extraction of
minerals, other than petroleum, from their natural site,
being operations carried on for the purpose of gaining or
producing assessable income".

7. The trial judge held the dam to be within sub-para. (a)(ii) of s.122A(1) and the taxpayer's counsel argued that his Honour was correct in so holding, but submitted that the expenditure is also within sub-para. (a)(iii) and within paras. (b) and (c) of the sub-section.

8. Before considering the application of these provisions to the facts, it is necessary to express some general views about their language. There was much debate before us as to the scope of the words in the definition "mining operations ... for the extraction of minerals ... from their natural site". On the face of it, these expressions are not apt to include the treatment of minerals after they have been mined. That understanding of the definition is held with more confidence once the structure of s.122A(1) has been examined. Of its four paragraphs, only one uses the defined expression "prescribed mining operations" - that is, only para. (a) does so. Paragraphs (b) and (c) are categories of expenditure relating to treatment of minerals. It seems plain that the reference in the definition of "prescribed mining operations" to "extraction of minerals ... from their natural site" was intended to have what one would, at first sight, have thought to be its obvious meaning, namely performance of the mining function itself.

9. When one turns to para. (a) of s.122A(1), it is seen that it is necessary to discriminate between expenditure "in" carrying on the defined operations and expenditure which, although related to those operations, should be regarded as merely ancillary. However, the stipulation of the classes of expenditure in sub-paras. (i), (ii) and (iii) prevents uncertainty about important points which might otherwise have been doubtful.

10. Reading into para. (a) the definition of "prescribed mining operations", it appears that to fall within the paragraph, the expenditure must be in carrying on operations for the extraction of minerals from their natural site. Not only the ordinary connotation of the words "extraction of minerals from their natural site", but also the presence of paras. (b) and (c), show that the legislature intended to separate consideration of treatment of mined minerals from the mining process itself; expenditure relating to treatment is caught by s.122A(1) only if it is within para. (b) or para. (c).

11. In arguing against this conclusion, counsel for the taxpayer relied upon the decision of the High Court in Commissioner of Taxation v. Broken Hill Proprietary Company Limited [1968] HCA 16; (1969) 120 CLR 240 ("the B.H.P. case"). That dealt with events within income years before a new and substantially different set of provisions was (by Act No. 60 of 1968) substituted (as Division 10) for the former provisions dealt with in the B.H.P. case; sub-s.122(1) read as follows:

"When a person, in connexion with the carrying on by him
of mining operations upon a mining property in Australia
or the Territory of Papua and New Guinea for the purpose
of gaining or producing assessable income, has incurred
expenditure of a capital nature on necessary plant,
development of the mining property or housing and
welfare, an amount ascertained in accordance with this
section shall be an allowable deduction in respect of
that expenditure".

12. One of the issues in that case was whether the cost of a plant for converting iron ore (which had been mined by the taxpayer) into pellets was allowable; the Court held it was not, on the ground that the pellet plant related only to treatment. Kitto J. held that the words "mining operations" in sub-s.122(1) included work done subsequently to the mining of the ore, to complete recovery of the desired end product (245). In the Full High Court, the view Kitto J. took of the expression "mining operations" was described as "very broad" (272). The Court remarked:

"We do not doubt that to separate what it is sought to
obtain by mining from that which is mined with it, e.g.,
the separation of gold from quartz by crushing etc., or
the separation of tin from dirt by sluicing, is part of a
'mining operation' but we would not extend the conception
to what is merely the treatment of the mineral recovered
for the purpose of the better utilization of that mineral".(273)

13. The Court went on to distinguish the decision in Federal Commissioner of Taxation v. Henderson (1943) 68 CLR 29, in which it was held that to obtain gold from gold-bearing material by a number of processes was a mining operation.

14. The view was urged upon us that the B.H.P. case, insofar as it throws light upon the meaning of the expression "mining operations" in the then relevant provisions, helps in ascertaining the effect of s.122A, in issue here. It was pointed out that the definition of "prescribed mining operations" uses the words "mining operations" and it appeared to be suggested that one should start with the presumption that "mining operations" in the definition means what it did in the repealed corresponding provisions.

15. The better view is that one should be loath to complicate the analysis of a new legislative treatment of a particular topic by basing such analysis upon what was decided under the very different set of provisions it replaced. The problem discussed by the High Court in the B.H.P. case, in the passages referred to above, was whether the expression "mining operations", unaccompanied (in the then provisions) by any reference to extraction of minerals from their natural site, included or did not include certain kinds of treatment after extraction of the minerals. It would seem almost perverse to apply what the High Court said on that topic to the language of the definition of "prescribed mining operations". The Court's construction must necessarily have been different if the provisions before it had included the present definition of "prescribed mining operations". From time to time, the legislature abandons one structure and builds another. The task of ascertaining the meaning of the latter is not necessarily assisted if one approaches it encumbered by a desire to preserve the value of accretions to the previous provisions of judicial exposition.

16. To turn again to the language of para. (a), it is seen that sub-para. (ii) implicitly incorporates the definition of "prescribed mining operations", because it is confined to buildings and the like "necessary for the carrying on by the taxpayer of such operations" (emphasis added), which takes the reader back to the introductory part of the paragraph. Since "prescribed mining operations" do not include treatment and matters ancillary thereto, but are confined to operations for the extraction of minerals from their natural site, the primary judge's conclusion on this aspect cannot, with respect, be supported. In accordance with the submissions for the Commissioner, it must be held that sub-para. (a)(ii) of s.122A(1) does not deal with treatment of minerals or what follows such treatment.

17. Three other contentions based on s.122A(1) were put forward, as possible bases on which the primary judge's conclusion as to the deductibility of expenditure on the tailings dam might be upheld. It is desirable to deal with them all.

18. First, it was said that para. (a)(iii) applies, as it includes within the paragraph expenditure in providing water for use on the site of prescribed mining operations. It was not suggested that the sole purpose of the dam is to provide water; the argument was that it is enough if that is one of the purposes, and in this connection the High Court's decision in Dampier Mining Co. Ltd. v. Commissioner of Taxation [1981] HCA 29; (1981) 147 CLR 408 was relied on.

19. No doubt in many contexts it is necessary to decide whether a right depending upon the existence of a stipulated purpose can be claimed, where what is done has a number of purposes. A familiar example in the income tax field is the line of authority dealing with the purpose of profit making by sale, mentioned in s.25A(1) of the Act and its predecessor, s.26(a). It has been held that under those provisions it is not enough if the purpose of profit making by sale is one of the purposes; that must be the dominant purpose; see, for example Annalong Pty. Ltd. v. Commissioner of Taxation [1972] HCA 45; (1972) 127 CLR 174 at 181.

20. There is no general rule that such a condition - i.e. one expressly or implicitly requiring the existence of a purpose - is satisfied, if it is shown that a stipulated purpose was one of the proponent's purposes, nor is it so that ordinarily the purpose must be a dominant one; each provision must be considered in its own context. Here, there is no express mention of "purpose" and the words used are simply "in providing ... water ... for use on ... the site ...". In an ordinary use of language, expenditure is not spoken of as having been incurred "in" a certain way unless that is the way in which it has been at least substantially, if not solely, incurred. For example, a person who is told by another that the latter has spent a certain sum in providing for his family would not take it that the expenditure was also directed to other, quite separate, ends.

21. This view of the law is fatal to the taxpayer's argument based on sub-para. (a)(iii). The primary judge, whose factual conclusions were (as mentioned above) challenged by neither side, held that the taxpayer intended to use water from the dam in extracting minerals from the ore. But his Honour also held that this was "only incidental to the primary and principal use of the embankment, namely to provide a safe method of disposal of the tailings and contaminated water".

22. It is perhaps superfluous to do so, but if one refers to the details of the evidence, the primary judge's conclusion appears to be amply supported. A consulting engineer who had advised the taxpayer about the dam recommended, in February 1970, that the dam water not be reused because of, among other things, its high level of dissolved salts. But, despite the recommendation of the engineer, it appears that reclaimed water from the dam was used. Reference to the engineer's subsequent reports shows that the use was not a major element in the treating operation. One of the taxpayer's executives (Mr P.D. Munro) reported in 1980 that:

"Water is used for return purposes to overcome processed
water shortfalls. However, the frequency of return water
pumping is low".

In oral evidence, Mr Munro described the reclaimed water pumping as "essential insurance for maintaining the economic operations of both concentrators". (The concentrators are part of the treatment plant). The word "insurance" conveys the idea that the dam is not a primary source of water for treatment purposes.

23. Having rejected the application of sub-para. (a)(iii), one must turn to the next provision relied on, sub-para. (b); it is desirable to quote it again:

"Expenditure on plant for use primarily and principally in
the treatment of minerals obtained from the carrying on
by the taxpayer of prescribed mining operations".

24. It was agreed by the Commissioner that the dam is "plant", and it appears that the proper course is to proceed on the assumption that that concession was rightly made. The question then becomes whether the dam was built for use "primarily and principally in the treatment of minerals".

25. It is evident that treatment of the sort in question, which involves removal from the ore of material in which the elements desired are highly concentrated, necessarily leaves a residue of material which is not to be further used - putting aside the possibility of its proving to be economic to further treat the tailings. Sometimes such residue may be able to be discharged onto land or into water in an unconfined way, but more commonly it must be contained by some means. If the treatment plant included large steel or concrete tanks, designed to contain separately the more concentrated and the less concentrated products of treatment, it would seem hard to avoid the conclusion that those tanks constituted part of the plant used in treatment of the minerals. Many processes turn out refuse of one kind or another as well as valuable products, and the containers into which the refuse is pumped would ordinarily be regarded as an integral part of the processing plant.

26. But a powerful consideration against the conclusion that the means of containing the tailings are part of the treatment plant is to be derived from para. (c):

"Expenditure on buildings or plant for use directly in
connexion with the operation or maintenance of plant
referred to in the last preceding paragraph, or buildings
or other improvements for use directly in connexion with
the storage (whether before or after treatment) of minerals in relation

to

operation of such plant".

Examination of para. (c) suggests that containers for the products of the treatment process are not intended to be caught by the language of para. (b), but are dealt with only in para. (c) and, more particularly, by the latter part of it, beginning "... or buildings or other improvements...". This deals with the storage of minerals "in relation to" operation of the treatment plant. Although the contrary conclusion is by no means impossible, it appears that the better view, reading paras. (b) and (c) together, is that the latter and not the former is the provision which deals with expenditure of the kind in question. That is, although one might have been inclined, if para. (b) stood alone, to regard it as including within its scope means of containing the products of the treatment process, the presence of para. (c) shows that para. (b) should be read more narrowly.

27. The final question then, as to the application of s.122A(1) to the tailings dam, is whether the dam is caught by para. (c). It should be noted that here no question arises as to the scope of the word "plant". The dam is plainly an "improvement". The Commissioner's counsel says that its use is not for the storage of "minerals" but only for the storage of tailings.

28. If the argument for the Commissioner is accepted, of various containers into which products of the treatment process are discharged, only those which have the more concentrated material in them are caught. It is difficult to imagine that the legislature could have intended such a distinction. If it was necessary, as in the present case, to have built containers for what flows out of the treatment process, one cannot think of any reason why the money spent on certain of the containers and not that spent on others should give rise to an entitlement to a s.122A deduction.

29. Counsel for the Commissioner pointed out that, on the evidence, it was not shown that there was any more than a possibility that the tailings would be recycled. Counsel also pointed out that the word "minerals" has a variety of meanings, depending on its context; see, for example, the discussion in Halsbury 4th Ed. Vol. 31 para. 8. The argument for the Commissioner limits the connotation of "minerals" to substances which are to be immediately or proximately exploited in some economically advantageous way by the taxpayer. No warrant is discernible in the words of s.122A or other relevant provisions of the Act for so confining the meaning of "minerals".

30. The untreated ore often contains only a minute proportion of the desired element, yet the language of para. (c) makes it clear that untreated ore is to be regarded as "minerals" for its purposes, albeit that it may consist almost wholly of material of no commercial value. That being so, it seems by no means improbable that, perhaps a little loosely, the word "minerals" was used to describe all the various products of the treatment of the ore.

31. The conclusion is that the cost of the dam is properly described as "expenditure of a capital nature" within the meaning of s.122A(1), not because it is caught by para. (a) as the primary judge held, but because it is caught by para. (c).

32. That is not the end of the dispute concerning the dam. It was argued for the taxpayer that the expenditure on the dam falls also within s.51 and within s.53 of the Act. As to the latter suggestion, it seems evident that the expenditure was not for repairs.

33. Although sometimes the word "dam" is used as meaning a retaining wall, in this case, in the evidence, the words "No. 8 tailings dam" stood for a retained area of tailings that came into existence in the years 1970 to 1971. The retaining wall originally built proved unsatisfactory, since there was substantial seepage through it. Another problem which required to be considered was that the time was approaching at which the retained material would reach the top of the wall.

34. After consideration of other proposals, the taxpayer decided to build a new and substantially higher retaining wall, being that now in question, downstream from the original wall and that was done. At one end, it impinged upon the original wall. As the level of retained material rose over the years, it submerged the original wall.

35. The submission that the cost of construction of the dam was an outgoing giving rise to a deduction under s.51(1), although not strongly pressed, needs some analysis. The Commissioner contended, of course, that ordinarily a dam wall is excluded from the provisions of s.51(1) by the exception it contains of outgoings "of a capital ... nature". The argument for the taxpayer was principally that the construction of the dam was not a solution to the problem of tailings once and for all, but that on the evidence it appeared that it was necessary to build a new dam from time to time. Reference was made to evidence that "the management of tailings dams is a regular and ongoing matter but it has peaks of activity as, for instance, where one tailings dam reaches capacity or, when groynes require construction". It happens in many businesses, particularly large ones, that the making of capital expenditure of one sort or another is almost continual. As counsel for the taxpayer was inclined to concede, this massive, expensive and permanent structure would seem at first sight to be a matter of capital. It is true that eventually the area contained by the dam wall is filled up and it is necessary to build another one. But that is not sufficient to convert the cost of building of the dam wall into a non-capital outgoing. The judge's conclusion that s.51 of the Act has no application to the tailings dam must be upheld.
Issues Nos. 3 and 4: Demolition Costs

36. These relate to the costs of demolition of two structures known as the "old Marley tower" and the "old roaster". On these questions, the primary judge held for the Commissioner.

37. The old Marley tower was a building beside a power station used at the taxpayer's Mount Isa mine. Its function was to cool water used to condense steam in the process of electric power generation. The tower was removed because it was thought to be in a dangerous condition. It was leaning substantially from the vertical plane. It was thought to be a fire hazard and presented a danger that parts might be blown off by the wind and injure someone. Apart from that, as the judge said, it was:

"a policy of the taxpayer to maintain the mine site in a
safe condition and to reclaim, as far as possible, parts
from obsolete buildings. This formed part of a repetitive
function which suggested recurrent expenditure of a revenue nature".

38. The old roaster had been used in the treatment of copper concentrates but, like the old Marley tower, had ceased to be used and had become, to some extent, a source of danger.

39. It was submitted for the taxpayer that the removal of these objects was a revenue expense and deductible under s.51 of the Act. That contention was supported by saying that, in a large enterprise such as that of the taxpayer, clearing away disused structures and equipment is a recurrent task.

40. Confronted with a similar argument, Kitto J. said in Federal Commissioner of Taxation v. Broken Hill Pty. and Co. Ltd. [1968] HCA 16; (1969) 120 CLR 240 at 261:

"I fully realise that I am considering the business of a very large
steelworks, and that in the course of such a business it is to be
expected that from time to time demolitions of all seven
descriptions will become expedient or necessary. Plant will become
obsolete or redundant and need to be replaced by other plant, or got
rid of for the sake of safety or in order to provide more free
space, or for tidiness and the resulting likelihood of improved
general efficiency in the yards ... Consequently demolitions of one
sort or another, while not exactly everyday affairs, are at least
naturally and occasionally - perhaps not infrequently, though not
regularly occurring events in the history of an active,
well-conducted and progressive steelyards". (261)

A little later, his Honour said of the demolished structures:

"They were all part of the appellant's 'profit yielding subject'.
Each of the demolitions in question was, in my opinion, effected to
obtain a lasting improvement to the appellant's complex 'instrument
for earning profits'".

41. The primary judge applied the views expressed by Kitto J. to the facts before him and his having done so was only faintly challenged before us. The principle on which this aspect of the B.H.P. case is founded is that demolition of obsolete structures for the purpose of improvement of the premises on which a business is conducted is ordinarily just as much a capital matter as the erection of the structures in the first place. No reason appears to justify any elaborate discussion of the correctness of the primary judge's view on this point, which must be upheld.

42. Then the taxpayer argued that the primary judge was wrong in his conclusions as to these demolished structures because he should have allowed a deduction under s.122A, aspects of which have been discussed above in dealing with Issue No. 1. The taxpayer said that the demolition costs constituted "expenditure of a capital nature incurred by the taxpayer, being - expenditure in carrying on prescribed mining operations, including expenditure ... on buildings, other improvements or plant necessary for the carrying on by the taxpayer of such operations", within the meaning of s.122A(1)(a)(ii). The primary judge held this not to be so because the structures were obsolete and redundant and were no longer "necessary for the carrying on by the taxpayer" of its mining operations.

43. Counsel for the taxpayer pressed the argument under s.122A(1)(a), but appeared unwilling precisely to identify which of sub-paras (i), (ii) or (iii) applied. The better view seems to be that the taxpayer can succeed, if at all, only under sub-para. (ii), as both categories of demolition seem plainly unable to be brought within sub-para. (i) or sub-para. (iii).

44. There is, perhaps, some difficulty in applying to sub-para. (a)(ii) of s.122A(1) a construction which treats the word "necessary" as meaning "necessary at the time of the expenditure". If plant used in prescribed mining operations is replaced by more up-to-date plant, the cost of the latter is deductible under sub-para. (a)(ii). But what of the cost of removal of the former? It seems unlikely that the legislature would have intended to distinguish between these two types of expenditure on the ground that removal of the old plant is not expenditure on "plant necessary for the carrying on ... of such operations". It may be that in the situation just mentioned, a broad construction of the word "necessary" would allow deduction of the costs of removal.

45. On the other hand, one cannot disagree with the conclusion of the primary judge as to the Marley tower; it seems impossible to say, without an abuse of language, that that was, at the relevant time, necessary for the carrying on of mining operations; it was merely a nuisance and that was why it was removed. Even if, as is suggested above, the whole cost of replacing outdated or worn-out plant by new plant should be allowed under sub-para. (a)(ii), it cannot be concluded that the separate operation of removing the Marley tower, which had been out of use for years, is within the sub-paragraph.

46. There remains for consideration the old roaster. It had not been used for some years and was removed because it was thought to be a source of danger. As to s.51, the reasons given above, with respect to the Marley tower, apply. As to s.122A(1), no reliance was sought to be placed on the paragraphs which relate to the treatment of minerals, namely paragraphs (b) and (c). For the reasons set out above in discussing the tailings dam, expenditure with respect to equipment used in treating minerals cannot be caught under paragraph (a).

47. Therefore the judge's decision on issues nos. 3 and 4 should be upheld.
Issue No. 5: The Decline

48. The fifth issue is whether or not the primary judge's view that the taxpayer is not entitled to a deduction for the cost of construction of a "decline" is correct.

49. The money at issue was spent, not at Mount Isa, but at the Agnew nickel mine in Western Australia. There is no dispute about the applicability of Division 10 to the expenditure, but the taxpayer wishes to have a deduction allowed under s.51, that being more advantageous to it.

50. At the Agnew mine, a deep vertical shaft was sunk and equipped and mining was carried out from tunnels driven horizontally from that shaft. In addition, some mining was done by use of a decline and it is the latter which gives rise to the dispute; the technique is sometimes called "slope mining".

51. The decline in question was dug, not vertically, but at a slant and in what was described as a "flat S" shape. The purpose of digging the decline was to follow down a particular rich body of nickel ore. The tunnel constituting the decline was dug in such a way that trucks could be driven down it to be loaded with ore won by the miners and, of course, driven back up again. At intervals along the decline, mining operations would take place by digging out to the ore body and then making use of a procedure called "stoping". That involves making a substantial chamber in the ore body by repeatedly blasting ore from the roof and walls of the chamber. The ore thus dislodged is loaded mechanically into trucks.

52. After the stoping operation was complete at one place, the decline would be further extended for about 30 metres (measured vertically) and another stoping operation performed. The decline gave access for the miners and also, as has been mentioned, provided a means whereby trucks could remove the ore from the mine.

53. The matter was argued on the basis that the digging of ordinary shafts for mining purposes is a capital expense; the Commissioner said the decline should be assimilated to ordinary shafts, for tax purposes.

54. When digging takes place to get access to ore, the cavity created may have only a temporary purpose, namely to get at and dig out ore adjacent to the cavity. Emphasis was placed, in the argument on behalf of the Commissioner, on the fact that the decline, like an ordinary mine shaft, has a purpose which is by no means only temporary. As the decline progresses further down into the earth, one has a longer and longer means of access to the ore body, the removal of which is the purpose of the decline. Further, the digging of the decline was, on the evidence, a fairly long-term project extending over some ten years, from 1976 to 1986; it was not thought likely that the decline would be used again, after 1986. The decline tunnel is about 5 metres in width and 5 metres in height. It is, in the first 160 metres, supported by steel braces, some of which are concreted in.

55. It is worthwhile to review some of the authorities concerning the tax treatment of the construction of shafts and the like. It should be kept in mind, however, that, on the evidence, the method in question would not have been used before diesel-powered machinery became available for mining, in this century.

56. The genesis of the idea that the cost of sinking shafts is, in general, a capital expense appears to be the Scottish case of Robert Addie v. Solicitor of Inland Revenue (1875) 2 SC 431. There, the cost of sinking shafts "nearly every year", and although they were "only wrought for a short time", was held to be a capital matter. That was applied to coal pits by the House of Lords in Coltness Iron Company v. Black (1881) 1 TC 287: (1881) 6 App Cas 315. There, the Solicitor-General (appearing against the Revenue) appeared to accept that the digging of the pits was a capital matter (311; 321) but said that the cost was nevertheless deductible. A list of pits, at pp 300 and 301 of the first mentioned report, shows that most of them were in use for quite some years, although some had been exhausted in a fairly short time.

57. The mining company did not, in that case, seek to have deducted the cost of sinking pits, but only an allowance of so much a ton, apparently estimated to be the average cost of that work. In the Court of Exchequer (Scotland) before the case reached the House of Lords, Lord Shand distinguished work of "stirring the soil for the purpose of getting at stone lying near the surface, in which practically the whole operation is that of cutting the stone, and where you have no expenditure which you can fairly distinguish from ordinary expenditure" (291). It was argued here by counsel for the taxpayer that one should regard the digging of the decline as making available immediate access to the particular part of the ore to be mined in the near future. Counsel said that use of the decline as a means of access to lower depths should be regarded as an incident of the operation, rather than as its primary function.

58. Lord Cairns, who agreed, as did all their Lordships in Coltness Iron, that the costs were not deductible, was not prepared to say that -

"... a mine owner might not in some cases be entitled to
an allowance in respect of the cost of sinking a pit by
means of which pit the minerals are gotten which are the
source of the profit for the year in which the pit was
sunk". (312; 324)

59. That is not quite this case for, although the usefulness of a particular extension of the decline, as a means of obtaining the ore in the immediate vicinity, lasts only for a short time, it continues to be useful for access to lower depths.

60. The possibility of shafts and the like being deductible as ordinary working expenditure was again referred to in Morant v. Wheal Grenville Mining Co. (1894) 3 TC 298. Wright J. postulated the case where -

"... The minerals lay at shallow depths and where it was
necessary to open them out from time to time frequently
by shallow shafts ...". (302)

He thought that the cost of sinking such shafts might be deductible and Collins J. expressed much the same view (303). A technique of repeated attacks on minerals by digging shallow shafts may be thought similar to repeated extensions of the decline to get at new ore.

61. In Bonner v. Basset Mines (1912) 6 TC 146, the main shaft of a tin mine was substantially deepened (by about 300 feet) and the new part was equipped in a "permanent and lasting construction" in the same way as the upper part of the shaft. Reversing the General Commissioners' decision, it was held that the expenditure was capital. It is to be noted that the facts were found to be that the extension was to be used

"... as a ventilating shaft and as a centre from which
levels and roads can be cut for the purpose of exploring
and discovering loads or pockets of ore at a level below
those portions of the mine which had been wholly or
partially exhausted and also for the purpose of raising
and lowering men and materials but not for the purpose of
following and winning ore from a vertical lode".
(emphasis added) (151)

The case is therefore, again, not quite the same as the present. The part of the reasons which has been emphasised may support the taxpayer here, insofar as it can be said that the very purpose of digging the decline was to follow and mine ore from the sloping lode.

62. That case was approved in Bean v. Doncaster Amalgamated Collieries (1944) 171 LT 214.

63. Reference should also be made to two decisions of the Supreme Court of Canada, which have the advantage of being more recent than the English decisions just discussed. These are the only cases that have been found in which an ultimate appellate court of the British Commonwealth has dealt with the problem. In Denison Mines v. Minister for National Revenue (1974) 49 DLR (3d) 450, haulageways were created by the "room and pillar method". Passages were driven into the ore body and then mining was conducted out from them, creating rectangular rooms separated by wide pillars. At issue was the cost of cutting the passageways which were, be it noted, cut through ore and not through the surrounding earth. The ore won from the passageways was saleable, just as was the ore from the rooms. The question arose whether the cost of the passageways was capital or revenue; if it were a "capital cost" and certain other conditions were fulfilled, a deduction could be allowed.

64. The Supreme Court of Canada held that the cost of the passageways was not a capital expense, agreeing with the trial judge and with the Federal Court of Appeal. The former had held that the passages were "assets for the enduring benefit of the trade" and that they "became haulageways for the transportation of ore from the rooms to conveyors ...". The trial judge also held that the passages "have the quality of permanence to render them an enduring benefit within the meaning of the authorities".

65. However, his Lordship said:

"The activity was in fact current ore extraction to meet
the appellant's immediate need to produce ore". ((1971)
CTC 640, 650-653)

66. The case appears to be of assistance to this taxpayer, but an important point of factual distinction was that in Denison Mines, about half the ore produced was extracted from the passageways. The judge thought that -

"... it would be incongruous to treat the cost of removing
the ore from the rooms as a current expense and that of
removing ore from the passage-ways as a capital expense".
((1971) CTC 640, 654)

67. The other Canadian case, also in the Supreme Court, is Johns-Manville Canada Inc. v. The Queen (1985) 21 DLR (4th) 210, which concerned what the judgment described as an "open-pit mine". By contrast with the Denison Mines case, in Johns-Manville it was in the interests of the taxpayer to show that the costs in question were of a revenue nature. That it did, the Supreme Court holding that certain acquisitions of land were not "from the practical and business outlook" acquisitions of capital assets. This result was arrived at on the following facts. As the mine deepened, it was necessary, from time to time, to acquire land at the surface, to preserve a safe angle in the slopes on the sides of the mine. The land acquired was then dug away, the land being said by the Court to have been "consumed" in the mining process (226). It was said that the expenditures produced "no enduring value"; that was thought to be so although the land "consumed", like the decline being considered in the present case, had some degree of continuing value, the former's being to provide space for permanent enlargement of the mine.

68. In Johns-Manville, there was discussion of the difference between that case and Denison Mines. The Supreme Court said, referring to the decision of the Federal Court of Appeal in Johns-Manville:

"Presumably, although the court below does not so state,
the expenditures in question here do not qualify because
they are incurred, in a sense, as a preparatory measure
to the actual removal of ore. This is a distinction
perhaps too fine to be made in the determination of tax
liability. If this were to be a consideration or a test,
then in the Denison circumstances, should the operations
momentarily pass through non-ore-bearing rock, the
expenditures would become capital but would resume their
current expense nature when the tunnelling once again
encountered ore-bearing rock". (215-216)

The importance of this passage, for present purposes, is that it suggests that the Denison case should not be regarded as depending on the circumstance that what was there dug out of the passageways was usable ore.

69. The Supreme Court said towards the end of the judgment:

"In the mining industry, where the undertaking is
underground mining with its associated assets such as
vertical shafts and horizontal transportation elements
not created directly by the removal of commercial ore,
the tax treatment of capitalization is invoked. On the
other hand, open pit or strip mining requiring none of
these fixed facilities leads to the attribution of the
associated expenditures to the revenue account". (229)

70. If that is the law to be applied in this country, then there would be a disinclination to open underground mines as opposed to open-cut (or "open-cast") mines, the former being subject to a tax disadvantage. In broad terms, a question which arises is whether mining by the decline method should be assimilated to open-cut mining, for tax purposes.

71. It is established that a permanent vertical shaft giving access to an ore body is an affair of capital; there was such a shaft at the Agnew mine. But the digging of the decline has a significantly different character in two ways. First, the decline was dug, not all at once, but in a series of relatively small excavations. Secondly, the decline was not dug as an asset to be used in the mine as a whole, but was made in the process of getting access to the particular part of the ore to be mined "in the near future", to adapt an expression used by the taxpayer's counsel. The construction of the decline was a continuing excavation, following the ore body down, dug as close as practicable to the ore body. The Agnew shaft was dug vertically, and was in places a very long way from the ore body.

72. It should also be mentioned that the sort of vertical shaft dealt with in the authorities typically has a lift or other substantial permanent equipment fitted, for the transport of people and chattels up and down.

73. Counsel for the taxpayer argued, and it seems correct, that recent decisions on the difference between income and capital receipts have tended to demonstrate that the former category is broader than was, perhaps, once appreciated. Reference was made to cases such as Federal Commissioner of Taxation v. Myer Emporium Limited [1987] HCA 18; (1987) 163 CLR 199 (see especially at pp 210, 215) and to Federal Commissioner of Taxation v. Whitfords Beach Pty. Ltd. [1982] HCA 8; (1982) 150 CLR 355. It was suggested that it is important to preserve a just balance between characterizations of items as capital or income, on each side of taxpayers' accounts. Whether or not that is an approach which is orthodox, it appears that the proper view is to characterize the decline as a revenue expense, applying the explanation of the first Canadian case which was made in the second and treating the decline as a means of "following the lode down". The point is no doubt finely balanced, but the better view appears, with respect, to be that the annual expenditure in extending the decline in each year, substantially for the purpose of immediately mining the ore in the vicinity of the extension, should be deductible under s.51(1). The cross-appeal should be allowed to that extent.
Issues Nos. 6 and 7: Accommodation Units

74. The taxpayer sought to disturb the trial judge's conclusion as to the tax treatment of the cost of provision for accommodation at two sites in Western Australia, one near the Agnew mine and the other near the Teutonic Bore mine. At each place, the taxpayer's participation was as a joint venturer. At the Agnew mine, a township called Leinster was established under an agreement with the State Government, and another township was established near the Teutonic Bore mine. Each of these mines is in a remote area north of Kalgoorlie and each township is of little or no practical use except as an adjunct to the nearby mine. The issue is whether the taxpayer is entitled to an investment allowance for the cost of construction of these units in the years 1978 and 1980.

75. The units were built in Perth, taken to the townships and assembled there. They were made on steel bases with steel frames and steel external walls and roofs. Some had carports and storage areas, which were of masonry and timber.

76. Assembly of the steel units was achieved by lifting each unit (then in two sections) using a crane and locating each on its foundations. This was done by attaching the steel underframes to steel columns attached to piers. The method of construction was such as to enable the units to be taken away and used without great difficulty at another location; as to some of the units, that occurred. Once assembled, the units had attached to them electric power lines, water supply and sewerage connection.

77. The taxpayer's counsel contended that an investment allowance should have been deducted under s.82AB of the Act. The primary judge held that provision to be inapplicable because of the language of s.82AA, the relevant part of which is set out below. That is, his Honour held that the units were not acquired or constructed by the taxpayer for use wholly and exclusively in Australia for the purpose of producing assessable income otherwise than by the granting to other persons of rights to use the property. The notice of appeal challenges that view and, by a notice of contention, the Commissioner put forward another reason for holding s.82AB to be inapplicable, namely that the units were not "eligible property" within the meaning of s.82AQ. It is unnecessary to deal with s.82AQ.

78. The relevant part of s.82AA reads as follows:

"Subject to the following provisions of this Subdivision,
this Subdivision applies in relation 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 -
...
(C) the granting to other persons of rights
to use the eligible property".

79. The argument for the taxpayer was that the provision just quoted was not made applicable merely by proof that persons were granted rights to use the property; it was said that it had to appear also that the purpose of producing assessable income included obtaining such income by granting rights to use the property. Counsel said that the sole purpose of constructing the units was to provide accommodation for the mine workers and that the derivation of rent was no part of that purpose.

80. In Tourapark v. Commissioner of Taxation [1982] HCA 18; (1982) 149 CLR 176, an investment allowance was sought under the provisions in issue here, for fixed site caravans which were leased or licensed out to tourists. The case is plainly distinguishable on the facts, but the Commissioner argued that the reasoning of the Court in Tourapark was such as to support the decision of the primary judge in this case.

81. The leading judgment was that of Gibbs C.J. who expressed the view that:

"... The Parliament intended that the allowance should not
be deductible unless the taxpayer kept both the property
and the exclusive right to use it, and did use it only
for the purpose of producing assessable income". (183)

His Honour added:

"... The investment allowance is made available for the
purpose of ... the expenditure of money on certain plant
which ... is intended to be used and is in fact used by
the taxpayer himself wholly and exclusively for the
production of assessable income and which others have no
right to use". (183)

82. Aickin J. suggested that even the occasional lending of the property to a friend "would appear to destroy the investment allowance".
None of these remarks was intended to exclude the investment allowance provisions where the taxpayer, being a corporation, used the property by its servants or agents, as a corporation must necessarily do. Here, however, the use by the Agnew and Teutonic Bore miners was not of that character.

83. It was pointed out for the taxpayer that to operate the min e the employees had to be given somewhere to live, and in that sense they were serving the interests of the taxpayer by living in the houses. But for the Tourapark decision, one might have thought the taxpayer's argument had chances of success: it is not immediately clear on the face of the section that the exclusion in sub-para. (C) of para. (a)(ii) applies where there is in fact a granting of rights to other persons. On one view of the wording, it makes the test the taxpayer's purpose in acquiring or constructing the property, not the subsequent course of events; but see s.82AG. But for Tourapark, it might perhaps have been arguable that the assessable income to produce which the taxpayer acquired the units was income from mining and that the small charges which were, in the event, made for the employees' use of the houses did not destroy the entitlement to deductions. However, one must respectfully agree with the primary judge's view that, having regard to the High Court's decision, s.82AA(a)(ii)(C) applies to exclude the investment allowance.

84. Another question which arises is whether the exclusion for structural improvements in s.82AE applies. As to that matter, the trial judge found in favour of the Commissioner. The reasoning based on Tourapark concludes the investment allowance issue against the taxpayer and makes it unnecessary to deal with the s.82AE point.
Summary

85. In the result, all the judge's conclusions are agreed in (although not necessarily for the same reasons) except his Honour's conclusion as to issue no. 5, namely the decline. It was agreed at the hearing below that if any of the Commissioner's decisions were upset, the question of the amount of the deduction would be left for determination, not decided in this Court.

86. The appeal in VG 172 of 1990 should in our opinion be allowed in part, and the order of Northrop J. made in VG 2027 of 1987 set aside.
In lieu of that order, it will be ordered in proceeding VG 2027 of 1987 that the decision of the Commissioner of Taxation with respect to the objection relating to the year of income ended 30 June 1980 concerning the deductibility of the decline be set aside and the matter remitted to the Commissioner for reassessment in accordance with these reasons.

87. Otherwise the appeals and cross-appeal will be dismissed. In the circumstances, it would seem just to order that there be no order as to costs, here or below.

In this matter I have had the advantage of reading the judgment to be delivered by Pincus and Ryan JJ. Except in one respect, I am in agreement with it. The respect in which I differ from their Honours' conclusions is in relation to the question whether the expenditure incurred in relation to the wall of the tailings dam falls within any part of s.122A of the Income Tax Assessment Act 1936. I respectfully agree with the conclusions reached by Pincus and Ryan JJ that the expenditure does not fall within any part of para. (a) nor of para. (b) of subsec. (1) of the section. The learned primary Judge found that the expenditure fell within subpara. (a)(ii) because it was expenditure on improvements for plant necessary for the carrying on by the taxpayer of mining operations. His Honour thought that the word "treatment" used in the subsection had no application to the provision because the plant, i.e. the wall or embankment, was on the mining property and the minerals were there being extracted from their natural site. The difficulty I have with this proposition is that the section makes a clear distinction between mining operations and treatment. Both of these expressions are defined in s.122 and are treated by the legislature as separate and distinct processes. The tailings dam is a necessary adjunct of the treatment process but it has no relevance to the extraction of minerals from their natural site. The fact that the minerals themselves and the treatment plant are on the same site does not warrant the conclusion that one can ignore the clear distinction between the processes of extraction and treatment which the legislature has drawn.

2. The difficult question is whether the expenditure falls within para. (c) of the subsection. The only applicable part of it could be so much of it as allows as a deduction expenditure on improvements for use directly in connection with the storage (whether before or after treatment of minerals) in relation to the operation of the plant. It was the primary submission of counsel for the taxpayer that the tailings in the tailings dam contained not insubstantial quantities of various minerals so that it could properly be said that the dam was used for their storage. Evidence was led to the effect that technology would enable the taxpayer, if it so wished, to undertake the process of refining the tailings and gaining the minerals which they contained. His Honour made no findings in relation to this evidence saying that no opinion was expressed on the contention that the dam was used to store the tailings and so retained them as a source for the extraction of minerals contained in them at some future time. It is necessary, therefore, to refer to the evidence on the question and come to a conclusion whether it is open to this Court itself to make findings about the matter.

3. The principal evidence was given on behalf of the taxpayer by Mr P.D. Munro who is the lead/zinc concentrator manager at the taxpayer's Mr Isa works. He has been employed in various capacities by the taxpayer since 1970. He is qualified as a metallurgist and holds degrees in applied science, economics and commerce from the Universities of Adelaide and Queensland. He is a Chartered Engineer in the United Kingdom and is a member of a number of mining and metallurgical institutes, some in Australia and some in various overseas countries. In his affidavit Mr Munro said that tailings dams served two important functions. The first was as a safe repository of tailings containing water and noxious minerals. Mr Munro said that it was "conceivable" that tailings might be recycled through the reclamation of sand in the tailings. He also said that the tailings contained varying quantities of copper, silver, lead and zinc which could not be extracted from the ore through the then existing treatment processes adopted by the taxpayer. Mr Munro said that it might be the desire at some future time to extract sand or the metals from the tailings. Mr Munro said that the second principal function of the tailings dam was as a source of reclaimed water for re-use in the concentrators.

4. Mr Munro gave oral evidence. He was asked the proportions of copper, silver, lead and zinc contained in the tailings. He said that the tailings from the copper concentrator contained 0.15 per cent copper and from the lead/silver concentrator 25 grams per tonne of silver, 1.5 per cent lead and 2.5 - 3 per cent zinc. He said that these proportions had varied over the years and two of the older tailings dams contained tailings which had over 4 per cent zinc in them. He said that the technology to extract the remaining minerals from the tailings did exist. Changes in technology had come about in the last 10 years and currently the taxpayer was examining leaching of the copper contained in one tailings dam. Mr Munro, although pointing out that he was not a mining engineer, said that the mining of the tailings would be quite simple because they could be dredged which he thought was the cheapest form of mining.

5. Mr Munro said that in the United States there was an extensive industry extracting copper at very low concentrations. He also mentioned a mine at Broken Hill which treated old tailings and made lead and zinc concentrates out of them. He referred also to mines in Canada, Spain and South Africa where this was being done.

6. In cross-examination Mr Munro was pressed concerning the purpose of the taxpayer in constructing the No. 8 tailings dam. His evidence was in part as follows:-

"Before the number 8 tailings dam was built a number of the
reports that you have exhibited discussed in some depth the
need for the dam and purposes to which the dam would be put,
that is true, is it not?--Yes.
There is no reference in that material to subsequent
recovery of the tailings, is there?---Not in the reports
exhibited.
And that is because it was no part of the decision to build
the number 8 tailings dam that minerals could subsequently
be recovered from that dam, was it?---No, but it would have
been assumed so.
Well the reason the dam was built was to store the waste
product?---Yes, but if you do not store it you cannot
recover it.

Later evidence given by Mr Munro was as follows:-

"In relation to the number 8 dam I suggest to you what that
means is anything is possible with future new technological
development?---We have studied - I know at least of one
study which has taken place on recovery of sands from
tailings dams for underground fill.
I understand that, but when you say it is conceivable you
mean just that, you can conceive of it but you are not
saying it is possible or probable, are you?---It is
definitely possible. The reason for that is the constant
need of the mine for fill, and if the ore mineralogy changes
such that we have to grind finer in the concentrator we may
not be able to make enough sand for the mine to fill up the
stopes from where the ore has been removed and we may have
to evaluate other sources of sand, and the tailings can be
regarded as a potential source of sand.
HIS HONOUR: The sand used there would also include the
minerals, would not it?---Yes, your Honour, although that is
an added benefit. If you have to mine it or remine it to
get the sand out then you can also extract the minerals as well."

7. There was no challenge to Mr Munro's credibility at the hearing. In those circumstances I think that this Court is in as a good a position to make findings about the matter as was his Honour. My conclusion is that technology has developed to a stage where the extraction of copper, silver, lead and zinc from the tailings is now technically possible and, depending upon the market, may be an economical proposition. Undoubtedly the prime purpose of the construction of the tailings dam was to retain the noxious substances in the tailings so that the surrounding environment would not be affected. But Mr Munro's evidence unquestionably establishes that the taxpayer has, in this and earlier tailings dams, a source from which it may in the future, if it wishes to do so, extract various minerals and also sand.

8. Those being the findings which I think should be made, the question is whether the embankment was for use directly in connection with the storage (whether before or after treatment) of minerals in relation to the operation of the plant. Notwithstanding the findings I think should be made, I am not persuaded that the expenditure on the embankment properly falls within this description. The prime purpose of the dam was the retention of noxious substances so as to keep the surrounding area safe. If attention were given to the matter of storage at all, it was scant. The dam had to be built; otherwise the taxpayer would have had to discontinue treatment at its Mt. Isa plant. To the extent that there is a prospect of extracting valuable minerals from the tailings, that is something for the future which may or may not happen. In those circumstances I think it would be straining the use of the applicable language to say that the dam was built for use directly in connection with the storage of minerals in relation to the operation of the plant.

9. Counsel for the taxpayer put the matter in an alternative way. He sought to give to the word "minerals" a very wide meaning so as to embrace anything other than animal or vegetable matter which was extracted from the ground. This is one of the dictionary meanings of the word; see the Shorter Oxford Dictionary. The Macquarie Dictionary defines it as any of a class of substances occurring in nature usually comprising inorganic substances of definite chemical composition and definite crystal structure but sometimes taken to include aggregations of these substances which the compilers of the dictionary say are more correctly called rocks.

10. Although the word "minerals" may have this wide meaning in some contexts, I do not think that it would be correct to give it that meaning here. The word is not defined in the Act except that in s.6 it is defined to include petroleum. I think that when one considers the provisions of Division 10 of Part III of the Act in which ss.122 and 122A appear, there is to be discerned an intention to refer to minerals as substances which contain valuable minerals or other substances which mining operations and treatment will enable a taxpayer to recover. After all, the provisions are in an income tax statute containing a multiplicity of sections the application of which lead to the ascertainment of a taxpayer's assessable income, the deductions to which he is entitled and his taxable income. Furthermore, the provision in question envisages that the minerals will be treated. That is clear from the provisions of the words in parenthesis, "whether before or after treatment" in the relevant part of the paragraph. The fact, therefore, that it could be a correct use of language to say that the dam was used directly in connection with the storage of minerals (in the sense of tailings which were the residue of what had been extracted from the ground) does not warrant the conclusion that that literal construction should be adopted here.

11. Another way in which this argument was put was to say that at least the sand of which Mr Munro spoke was a mineral so that the dam was used for the storage of sand which might at some future time be extracted. If the argument is to be understood as one which involves no more than the fact that the dam stores sand makes it a dam used for the storage of minerals, I do not think that any different considerations apply to it than apply in relation to the argument based on "minerals" having a much wider meaning. If the argument is understood to involve the possibility that one day sand may be required from the dam for use in the treatment plant, then I do not think the argument is as strong as that based on the possible recovery of the more valuable minerals referred to by Mr Munro. Certainly the same considerations apply to it and must lead, in my opinion, to its rejection.

12. In considering the various questions which have arisen for determination in this case I have been struck by the fact that the great variety and number of operations which are involved in the extraction and treatment of minerals will lead to situations in which decisions on whether particular forms of expenditure are within s.122A or not will sometimes seem to be quite arbitrary. But all one can do, in applying a provision such as s.122A of the Act, is to take the words of the section and the particular facts of a given matter and decide whether the expenditure in question is or is not allowable as a deduction. The fact that the section may turn out to have at times an illogical or even capricious operation is not something with which the Court can be concerned. Its task is one of construction; the policy of what should or should not be allowed as a deduction is for the legislature and not for the Court.

13. For the reasons I have given, I am of the opinion that the appeal brought by the Commissioner in matter No. VG171 of 1990 should be allowed with costs. Otherwise I agree in the orders proposed by Pincus and Ryan JJ.