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Lindsay v Federal Commissioner of Taxation [1961] HCA 93; (1961) 106 CLR 377 (14 December 1961)

CATCHWORDS

HEARING

DECISION

2. On the partnership's premises there are two slipways, each extending, from a building which houses powerful hauling machinery and is well up the gently-sloping bank of the river, down to the water and sufficiently far out into the stream to reach a depth which will allow for the draft of vessels of the kind for which the slips are intended. The premises are bounded at the sides and the rear by retaining walls. Each of the slips is provided with longitudinal girders or runways (called longitudinals), carrying iron rails upon which a large wooden cradle fitted with wheels may be moved. In each case there are two outside rails, and a double centre rail enclosing a rack. For the operation of a slip there is attached to the landward end of the cradle a series of steel traction rods connected to the hauling machinery; the cradle is allowed to slide down the runway and far enough into the water to enable it to take the vessel; the vessel is manoeuvred onto the cradle by the use of dolphins (each consisting of three piles, standing out in the stream) and warping winches, which form part of the equipment of the premises; the cradle with the vessel on it is then hauled up the slip onto dry land, and is held at the desired point by use of the rack; and when the intended work has been done to the vessel, the catch on the rack is released, the cradle is allowed to slide down into the water, and the vessel is floated off. The movement of the cradle up and down the runways is achieved by a series of movements, each the length of a traction bar. When the cradle has moved that distance, one traction bar is taken out of the line or added to it (as the case may be), with the aid of overhead handling gear, and the next movement then takes place. (at p380)

3. The slipway in question in this case is known as the No. 1 slipway, and has a capacity of 1000 gross registered tons. A predecessor was built in or about 1869, and was replaced about 1888. It seems that extensions were added in 1890 and 1900. As it existed immediately before the events out of which the present controversy arises, the No. 1 slipway consisted of iron rails carried by timber longitudinals, these resting on timber headstocks, the headstocks in the water being supported by timber piles, and those on the land being bedded in clay. Between the runways there was wooden flooring from the face of the winch house to the mud-line or a little below. The total length of the slipway was 485 feet. (at p380)

4. During the war, signs of deterioration in the slipway appeared, particularly in the area between high-water mark and the mudline, and from 1948 to 1954 the appellant, who by then had become the firm's manager, took steps towards dealing with the situation. On 8th June 1955, an engineering company which had been consulted (for shortness it may be called Hornibrooks) reported to the firm that it was necessary for "major repairs" to be executed, and submitted estimates for "repair" in reinforced concrete. The reason for the choice of this material was that suitable timber was unobtainable. I am satisfied that reinforced concrete offered no advantage over timber, even in point of durability, and that in some respects it was not suitable. As regards cost, there was no substantial difference between the materials. In a letter of 15th April 1954, confirming preliminary estimates for this work, the engineering company described the work as "reconstruction" of the slipway, and their use of that word was to lead the Deputy Commissioner of Taxation at a later date to question whether the work should be regarded as "repairs". In order to decide the point it is necessary to look more closely at what, in the event, was done. (at p381)

5. The work undertaken related to the whole length of the No. 1 slipway and an extra forty feet or so by way of extension into deeper water. The first step was to construct a coffer dam which would enable a large part of the work to be done in semi-dry conditions. Only 100 feet of the extended length of the slipway lay outside the dam. For the purpose of erecting the coffer dam, special steel piling had to be rolled by the Broken Hill Pty. Co. Ltd. To pay for this piling the firm paid Hornibrooks 3,833 pounds 6s. 8d. in the year ended 30th June 1954, and 8,043 pounds 15s. 6d. in the year ended 30th June 1955. The coffer dam having been constructed, the work on the slipway itself began. The longitudinal runways and the rails upon them were removed, as was the wooden flooring also. The supporting headstocks were then removed, leaving depressions where they had rested, in the clay above water and in the mud below. Only three of the piles which had supported the headstocks below the water and within the coffer dam were removed, the rest being found to be in good condition. Six piles were put in to replace the three removed. Outside the dam, a method of construction was adopted which departed from the old: piles were driven for the 100 feet, and on these were rested, not headstocks but a structure made of heavy steel rails which was assembled on the cradle, picked up by floats, and placed in position on the piles. The depressions left by the removal of the headstocks and the wooden flooring between the runways were enlarged to take concrete members which had to be of larger dimensions than the timber which had preceded them, though they had to take only the same weight. Then the runways were boxed-in, the longitudinals were tied together with reinforcing rods so as to form a unit and prevent spreading, and the conrete to fill the depressions and to form the runways and the new flooring was poured. New rails and tracks for the cradle were affixed to the longitudinals. The result was a slipway thirty or forty feet longer than the old (and consequently providing about two feet more water above the cradle), but otherwise of the same dimensions and capacity, possessing no practical advantages over it, and indeed in some respects slightly less advantageous. The site and the angle of declivity were unaltered, and no greater efficiency in operation was obtained. When the construction was complete, the coffer dam was removed, and the steel pilings were sold for 9,000 pounds. In addition to what was done to the slipway, repairs were effected to the cradle. (at p382)

6. The partnership return for the year ended 30th June 1956 included a reconciliation statement in two parts. The first part explained how the figure of 30,150 pounds 8s. 5d. had been arrived at. It showed expenditure totalling 44,419 pounds 16s. 8d., and dissected the items comprised in that amount so as to attribute their proper proportions respectively to the coffer dam, the inboard section (above highwater mark), the centre section (within the coffer dam), the outboard section (the one hundred feet below the coffer dam), plans and surveys, and the repair of the cradle. The amount attributed to the outboard section, which was admittedly a completely new structure, was shown as capitalized and was accordingly deducted from the total expenditure, leaving 41,113 pounds 11s. 11d. as being the amount which was claimed as an allowable deduction. Against this there were set off certain items totalling 10,963 pounds 3s. 6d., under the heading "salvage recovery", the only relevant item being 10,000 pounds which included the 9,000 pounds proceeds of realization of the steel piling from the coffer dam. The set-off resulted in the ultimate figure, 30,150 pounds 8s. 5d. (at p382)

7. The second part of the statement showed in what respective years of income the expenditure was incurred. As already mentioned, 3,833 pounds 6s. 8d. was expended in the year ended 30th June 1954, 8,043 pounds 15s. 6d. was expended in the year ended 30th June 1955, and the balance of the net sum of 30,150 pounds 8s. 5d., namely 18,273 pounds 6s. 3d. (including the whole cost of repairing the cradle, 2,913 11s. 7d.), was expended in the year ended 30th June 1956. (at p382)

8. It is convenient to deal with the second part of the statement first. The appellant has been assessed to tax on the footing that the amounts expended in the first two years cannot be, on any view of the nature of the expenditure, allowable deductions in the third. It is clear from the express terms of s. 53 that this is correct: the deduction for which the section provides is limited to expenditure incurred by the taxpayer "in the year of income". It does not necessarily follow, however, that the only amount which can be allowable in respect of the third year is the balance, 18,273 pounds 6s. 3d.; for this is only the balance making up the 30,150 pounds 8s. 5d., which the first part of the statement shows has been reached by subtracting from the total of the expenditure which the appellant asserts to be expenditure for repairs (41,113 pounds 11s. 11d.) the amounts under the heading of "salvage recovery". If the work done is correctly described as repair, there will be a question whether so much of these amounts as relates to the steel piling from the coffer dam (9,000 pounds) should not be added back, on the ground that, as the cost of obtaining the piling in the previous two years is not an allowable deduction in the third year, the proceeds of its realization should not be treated as diminishing the amount of any deduction which is allowable under s. 53 in the third year. (at p383)

9. The respondent first assessed the appellant to tax in respect of the year of income ended 30th June 1956 on the footing that the deduction shown in the partnership return for that year in respect of expenditure on the slipway was an allowable deduction; but by an amended assessment he disallowed 27,237 pounds of the deduction. That is to say that he treated as an allowable deduction under s. 53 the 3,099 pounds 9s. 1d. which the partnership expended in repairing the cradle, less 185 pounds 17s. 6d. for salvage recovery, but treated the balance of the 30,150 pounds 8s. 5d. as not falling within the provisions of s. 53. (at p383)

10. In respect of the year of income ended 30th June 1957, the partnership return included a "Main Slip Repair Programme Summary" which showed an amount of 7,418 pounds 2s. 8d. as having been expended in the year on the slipway and the cradle. Salvage sales reduced the figure to 7,221 pounds 3s. 0d. Of this, 4,669 pounds 15s. 5d. was conceded to have been expenditure on the extension of the slipway, and therefore to be capital expenditure. This left 2,551 pounds 7s. 7d., which included 293 pounds 2s. 5d. in respect of the cradle. The respondent assessed the appellant on the footing that although the expenditure on the cradle was an allowable deduction, the balance, 2,258 pounds 5s. 2d., was not within s. 53. (at p383)

11. The appellant, having unsuccessfully objected to the amended assessment in respect of the year of income ended 30th June 1956 and to the assessment in respect of the year of income ended 30th June 1957, has had each objection transmitted to the Court as an appeal. The question whether the partnership's expenditure on the No. 1 slipway was incurred for repairs and was not of a capital nature is common to both appeals and must be considered first. (at p383)

12. If the work done in respect of the slipway is correctly described as repairs, it cannot, I think, on the facts of this case, be of a capital nature. The problem is to characterize the expenditure according to the familiar distinction between repair, in the sense of restoration by renewal or replacement of subsidiary parts of a whole, and renewal in the sense of reconstruction of the entirety, meaning by the entirety not necessarily the whole but substantially the whole of the subject matter under discussion: per Buckley L.J. in Lurcott v. Wakely & Wheeler (1911) 1 KB 905, at p 924 ; Rhodesia Railways v. Collector of Income Tax, Bechuanaland (1933) AC 368, at p 374 . The application of the distinction is often doubtful, and depends very much upon what is properly to be considered, in the circumstances of the case, to be the relevant entirety. (at p384)

13. In the argument submitted on behalf of the appellant, it was pointed out that on the very terms of s. 53 the subject matter of repairs may be either the whole or a part of any premises; and it was suggested that what should be considered the relevant entirety is the whole of the partnership's premises on which the No. 1 slipway exists, or alternatively the whole No. 1 slip (comprising the slipway, the hauling machinery which serves it, the cradle upon it and the dolphins and warping winches by which vessels are manoeuvred onto it). In either view, it was said, the No. 1 slipway is to be regarded as only a subsidiary part; so that even if the work that was done be considered as the complete renewal of the slipway, it should be held none the less to be a repair, either of the whole premises or of the part of the premises which consists of the whole No. 1 slip. (at p384)

14. I am unable to accept this argument in either of its forms. The only justification that was suggested for treating the whole premises, or the whole No. 1 slip, as the relevant entirety, was that the entirety to be considered is "the income-earning unit". In order to determine whether an item of expenditure is to be held on general principles to be chargeable to income or capital account, it is of course necessary to distinguish between "the business entity, structure or organization set up or established for the earning of profit and the process by which such an organization operates to obtain regular returns by means of regular outlay"; and it is true that "the business structure or entity or organization . . . may consist in a great aggregate of buildings, machinery and plant all assembled and systematized as the material means by which an organized body of men produce and distribute commodities or perform services": Sun Newspapers Ltd. and Associated Newspapers Ltd. v. Federal Commissioner of Taxation [1938] HCA 72; (1938) 61 CLR 337, at pp 359, 360 . But where the question is whether expenditure has been for repairs, and for the purpose of deciding that question one asks what is the entirety which it is relevant to consider, one is looking not for a profit-earning structure or entity, as such, but for a physical thing which satisfies a particular notion. (at p384)

15. The reference in s. 53 both to premises and to any part of premises is, I think, not difficult to understand. In the United Kingdom provision which was considered by Donovan J. (as he then was) in Phillips v. Whieldon Sanitary Potteries Ltd. (1952) 33 Tax Cas 213 , there was a reference to "premises" simpliciter. But his Lordship said: "In my judgment, the 'premises' for the purpose of Rule 3 (d) may sometimes be the whole of the trader's business premises and may sometimes be a specific building forming part of those premises. Thus, if a factory window were blown out and had to be repaired, it would be obviously wrong to argue that as the entirety of the window had been restored it was not a repair to the premises. In such a case the 'premises' would be the entire factory, in relation to which the window would be a repair and nothing else. But if, for example, a retort house in a gasworks was destroyed and had to be rebuilt, one would hardly call that a repair to the gasworks. The size of the retort house would compel one to regard that as the premises for the purpose of Rule 3 (d); and since it had been replaced in full it could not be said to have been repaired. These examples illustrate what I think is the truth, that there is no one line of approach to the problem which is exclusively correct. In some cases it will be right to regard the premises as the entire factory, and in others as some part of the factory. Whichever alternative is the right one to adopt will depend upon the facts of the particular case" (1952) 33 Tax Cas, at p 219 . (at p385)

16. The same is true, in my opinion, under s. 53 of the Australian Act, and upon consideration of the evidence in the present case, assisted as I have been by a view, I am of opinion that the No. 1 slipway ought to be considered, for the purposes of the question I have to decide, as an entirety by itself, and not as a subsidiary part of anything else. It is separately identifiable as a principal, and indeed the principal, item of capital equipment, so that in a discussion as to whether work done in relation to it constitutes a repair or a renewal in the opposed senses abovementioned, the subject matter in relation to which the choice of description is to be made is the slipway itself, and not any larger thing or aggregation of things of which it may be suggested to form part. (at p385)

17. The case is clearly distinguishable, I think, from the Rhodesia Railways Case (1933) AC 368 , upon which the appellant strongly relied. In that case the replacement of rails and sleepers over thirty-three miles of a railway line, and of sleepers over a further forty miles, was held to be a repair. The total length of the line was three hundred and ninety-four miles, and the effect of the work was to bring the track as a whole back to normal condition. The track as a whole was regarded as an entirety, the decisive consideration being that "the periodical renewal by sections of the rails and sleepers of a railway line as they wear out by use is in no sense a reconstruction of the whole railway and is an ordinary incident of railway administration": per Lord Macmillan (1933) AC, at p 374 . Similarly in Samuel Jones & Co. (Devondale) Ltd. v. Commissioners of Inland Revenue (1951) 32 Tax Cas 513 , the replacement of a chimney in a factory premises was considered a repair, because on the facts it appeared that the factory was the unit to be considered, and of that unit the chimney was only a subsidiary and inseverable part. (at p386)

18. What, then, was done to the slipway? On the findings I have made, the differences between concrete and timber construction should not be regarded as decisive, nor should the consequential differences, e.g., the differences in size between the excavations in which the wooden headstocks and the wooden flooring timber formerly rested and the excavations which now contain the concrete members used in their stead. Suppose that the work that was done in concrete had been done in timber. I can state my view of the matter briefly by saying that even then I should have considered that the entirety of the slipway had been renewed, that is to say that substantially the whole of the old slipway had been demolished and that the partnership had equipped itself with what was to all intents and purposes a new slipway. A fortiori, I regard the present slipway as a new and not a repaired slipway. The new structure is, in fact longer than the old; but even if the added length be ignored, it is a slipway in which every component is new, except about 148 out of the 151 or so piles which had supported that part of the old structure which was below the water line. Notwithstanding the exception, it is, I think, the reality of the matter that the partnership acquired by its expenditure a new slipway. In my opinion the work done constituted renewal and not repair. (at p386)

19. On this view of the matter, the question I have mentioned as to the way in which the 9,000 pounds recovered by the sale of salvaged steel piling should be treated does not arise. But there remains a question as to whether the amendment of the assessment in respect of the year of income ended 30th June 1956 was authorized by the only provision upon which the Commissioner relies for the purpose, namely sub-s.(2) of s. 170. That sub-section empowers the Commissioner to amend an assessment, within limits of time which in this case were not exceeded, but only where the taxpayer has not made a full and true disclosure of all the material facts necessary for his assessment. The onus lies upon the appellant to establish that before the date of the initial assessment, viz. 11th April 1957, he made a full and true disclosure of all the material facts. He made no disclosure independently of the partnership, but of course whatever was disclosed by the partnership was disclosed by him. The partnership's disclosures were made partly in its return for the relevant year, and partly in earlier correspondence. The correspondence had arisen out of the department's consideration of the partnership's return for the year of income ended 30th June 1954, in which a payment to M.R. Hornibrook Pty. Ltd. had been described as an "advance on Slipway Repairs". The Deputy Commissioner wrote on 28th February 1955 to the accountants who were the partnership's tax agents, asking for a copy of the specifications and a statement of the cost of the major items of the work. By way of compliance with this request, the accountants sent a copy of a letter which Hornibrooks had written to the partnership's manager on 15th April 1954, setting out their preliminary estimates of cost and particulars of the work allowed for in respect of each of the three sections of the slipway. This letter described the work as the "proposed reconstruction of your No. 1 Slipway". The particulars which it gave differed in two respects only from the work which eventually was carried out. One point of difference was that, in respect of the section above the water line, the exposed section as the letter called it, the assumption was made that the headstocks supporting the longitudinals rested on piles driven into the clay, and that checking of these piles for soundness would reveal that ten per centum (i.e. twenty-three piles) would need to be replaced by new piles. The assumption was to prove incorrect, for it turned out that there were no piles beneath the exposed section: the wooden headstocks rested in the clay; and the concrete which took their place was made to rest in the soil also. The other point of difference was that in the submerged section within the coffer dam it was expected that fifty per centum of the piles (i.e. seventy-four piles) would need replacement, whereas all but three were found, as I have mentioned, to be sound, and were accordingly left in position. To an extent, the second point of difference compensates for the first, when the letter is read now for the purpose of seeing whether it disclosed all the material facts when it was sent to the Deputy Commissioner. On balance, it gave a picture slightly more favourable to the view that the work was one of repair than the reality turned out to be; but to anyone who knew the slipway and understood how it was constructed it would, I think, have revealed that the work was one of replacement and not of repair. On 4th April 1955, however, the Deputy Commissioner wrote the partnership a letter which showed that he was not in a position to know from the facts before him whether it was or was not repair work that was planned. After pointing out that in Hornibrook's letter the work had been described as reconstruction of the slipway, the Deputy Commissioner drew attention to the fact that the cost of repairs only was an allowable deduction, and asked for a certificate from the architect or contractor setting out the nature and extent of the repairs to be carried out and their estimated cost. The letter added that the cost of reconstruction was not regarded as a repair when the new structure was of superior construction to that of the original asset. The partnership's accountants replied on 17th June 1955, enclosing a letter of 8th June from Hornibrooks, and sending the partnership's comments on both of Hornibrook's letters. The second letter from Hornibrooks, though it used the word "replacement" in relation to individual components of the slipway, described the entire work as "repair". It gave no new facts relevant to the distinction between repair and renewal, but it emphasized that timber was not procurable and that concrete differed little from timber so far as the result was concerned. It expressed the opinion that the outer 42' 6" only was an extension, and allocated to it an apportioned part of the gross cost. It mentioned that working drawings had been prepared and blue prints submitted to the partnership for approval; but neither the drawings nor the blue prints were sent with the letter to the Deputy Commissioner. In commenting on the letters, the partnership described the word "reconstruction" on the contractors' earlier letter as loosely applied. It said that the work to be performed was not a reconstruction, but "a general reconditioning of the existing slipway"; and it added that its intention was "to restore the existing slipway to its former condition and to extend the slipway". After mentioning that the cost of extension would be capitalized, and that the use of concrete instead of timber would not produce a slipway superior or more advantageous, it made the following statement: "The reconditioning through replacement of worn parts will not amount to a replacement of the 'whole' slipway, but merely the replacement of various component parts of the 'whole slipway'. Whatever work is carried out, other than the slight extension, will be that of reconditioning the present slipway". (at p388)

20. This is the sum of the material which the Deputy Commissioner had before him when the assessment of 11th April 1957 was made. In my opinion it did not amount to a full and true disclosure of all the material facts. I do not mean to suggest that there was any attempt to misrepresent or conceal facts; but the ultimate fact, that the No. 1 slipway was really renewed as distinguished from being repaired, not only remained undisclosed but was consistently denied. That was no doubt done in good faith, and it might not have mattered to a person who knew the slipway and, because he understood just how large and significant a proportion of the entire asset was being renewed, was in a position to form his own conclusions. But even to give as much information as was contained in Hornibrook's letter of 15th April 1954 was not, I think, to make a full disclosure of the facts relevant to the material question - that is to say a full disclosure to a person unequipped with prior knowledge of the slipway - especially when the information was accompanied by repeated assertions that the facts that were stated added up to repair only. There was enough to put the Deputy Commissioner on inquiry; but to put him on inquiry is not to make a full disclosure. In my opinion, the amendment of the assessment was authorized by s. 170 (2). (at p389)

21. For these reasons I am of opinion that both appeals fail. They must be dismissed with costs. (at p389)

22. From this decision the appellant appealed to the Full Court of the High Court. (at p389)

23. G.A.G. Lucas Q.C. (with him J.L. Kelly), for the appellant. In the operation of the slip there are several components, the dolphins, the wharfing winch, the slipway, the cradle, the hauling machinery and the excavation. Each one of these is entirely useless for the purpose for which it was designed without the others. The dispute between the parties is that the appellant claims that the work that was done constituted repairs whilst the Commissioner held that it constituted renewal or reconstruction rather than repairs. (On the word "repair" he referred to Lurcott v. Wakely & Wheeler (1911) 1 KB 905 , per Fletcher Moulton L.J. (1911) 1 KB, at p 919 , per Buckley L.J. (1911) 1 KB, at p 923 ; and Morcom v. Campbell-Johnson (1956) 1 QB 106 , per Denning L.J. (1956) 1 QB, at p 114 .) The first question the Court will have to consider is the question: What is the entirely? If the entirety has been reconstructed the expenditure so incurred does not come within s. 53 (1), but if a component part of the entirety has been renewed or replaced, it is then a question of degree whether what has been done amounts to repairs. (He referred to Rhodesia Railways v. Collector of Income Tax, Bechuanaland (1933) AC 368 , and Samuel Jones & Co. (Devondale) Ltd. v. Inland Revenue Commissioners (1951) 32 Tax Cas 513, at p 517 .) Applying the relevant principles in those cases, Kitto J. was in error in regarding the slipway as the entirety for consideration in this case and not as a subsidiary part of something else. The entirety to be considered is the slip. Of this entirety No. 1 slipway is merely a component-part. The cost of the complete replacement of the slipway would be deductible. Since the slipway was not completely replaced, a fortiori what was done to the slipway constitutes repair and the cost of it is deductible. Alternatively, even if the slipway is to be considered the entirety the expenditure incurred is still deductible under the heading "repairs" since by that expenditure the partnership has merely restored the slipway to its proper income-earning condition and has not in any real sense of the term acquired a new slipway; it has the same slipway restored to its former condition but incidentally constructed in some degree of different materials. With regard to the amended assessment for the year ended 30th June 1956, the Commissioner when he made his original assessment for that year had before him the partnership return with accompanying statements and certain correspondence in the previous year arising out of the partnership return for the year ended 30th June 1954 including the estimate for the work in question from the contractor which set out in detail the work that was to be done on the No. 1 slipway. This gave the Commissioner in reasonable detail what it was material for him to know for the purpose of making an assessment for the year 1955-1956. It was claimed in the correspondence by the tax agent that the work disclosed constituted repair, but if the work is stated correctly and there is a misconception as to the classification of the work and that erroneous classification is conveyed to the Commissioner, there is nevertheless no failure to disclose the material facts. Australasian Jam Co. Pty. Ltd. v. Federal Commissioner of Taxation [1953] HCA 52; (1953) 88 CLR 23 is distinguishable from this case. (at p390)

24. D.M. Campbell Q.C. (with him F.G. Brennan), for the respondent. The work went beyond repairs to effective parts and comprised the reconstruction of substantially the whole of the slipway and extending it below water. The expenditure incurred was of a capital nature and is not an allowable deduction under s. 53 (1) The question of repair and renewal is one of fact and degree. "Repair" means to make good defects including renewal where necessary; it does not connote restoring in entirety to the same overall condition as when new. A new slipway was acquired by the expenditure, the old slipway was completely demolished and replaced by a new structure with the exception of the piles in the river below water. The relevant entirety could not be the whole slip including No. 1 slipway and No. 2 slipway. They are separate entireties. Each operates as a separate unit with its own appurtenances such as cradle, hauling machiney and winches. No. 2 slipway has a capacity of 400 gross registered tons. No. 1 has a capacity of 1000 gross registered tons. The relevant entirety could not be all the components of No. 1 slipway. It could not be said that the slipway was a subordinate part of the dolphins or the winches or the haulage machinery: Those things are appurtenances or appendages of the slipway; they are part of the equipment of the slipway. They are not structural features. If you take them away the slipway still remains. The slipway therefore is the entirety. The importance of considering entirety was referred to by Lord Carmont in Laurie v. Inland Revenue Commissioners (1952) 34 Tax Cas 20, at p 26 . The proper test is to consider whether the work amounted to a renewal or replacement of defective parts of No. 1 slipway or whether it amounted to a renewal or replacement of substantially the whole of that slipway: Lurcott v. Wakely & Wheeler (1911) 1 KB 905, at p 923 ; O'Grady v. Bullcroft Main Collieries Ltd. (1932) 17 Tax Cas 93, at p 101 ; Margarett v. Lowestoft Water and Gas Co. (1935) 19 Tax Cas 481, at p 488 ; Phillips v. Whieldon Sanitary Potteries Ltd. (1952) 33 Tax Cas 213 . Having regard to the extent and the cost of the work, its importance, its degree of permanence and its non-recurring nature, the expenditure on it was of a capital nature and therefore expressly excluded from s. 53(1). (He referred to Sun Newspapers Ltd. and Associated Newspapers Ltd. v. Federal Commissioner of Taxation [1938] HCA 73; [1938] HCA 72; (1938) 61 CLR 337 , and Phillips v. Whieldon Sanitary Potteries Ltd. (1952) 33 Tax Cas, at p 220 .) The Commissioner was entitled to amend the assessment for the year ended 30th June 1956. The onus was on the appellant to show that he made a full and true disclosure to the Commissioner of the material facts: McAndrew v. Federal Commissioner of Taxation [1956] HCA 62; (1956) 98 CLR 263 . The information supplied to the Commissioner in this case was not sufficient to allow a true comparison between the old and new No. 1 slipway and was misleading in its insistence that the work was repair. The information should have disclosed, and it did not, that when the new work was commenced there was nothing left of the old slipway, that it was demolished and completely removed and the excavation was then deepened to take the new headstocks. G.A.G. Lucas Q.C., in reply.
Cur. adv. vult. (at
p392)

1961, December 14.

The Court delivered the following written judgment:-
The substantial question which arises in these two appeals from Kitto J. is

2. The facts of the case are comparatively simple. The expenditure in question was incurred in and about extensive work done in connexion with a slipway at the premises of the partnership on the banks of the Brisbane River at Kangaroo Point. We so describe the work to avoid characterizing it at this stage either as repair work or as new work directed to improvement and reconstruction. But although the facts relating to the work are simple and within a small compass a full appreciation of the appellant's contentions requires some examination of the background against which the work was done. As Buckley L.J. said in Lurcott v. Wakely & Wheeler (1911) 1 KB 905 "'repair' and 'renewal' are not expressive of a clear contrast. Repair always involves renewal; renewal of a part; of a subordinate part" (1911) 1 KB, at p 923 . It is, therefore, necessary, in cases such as the present, that the work in respect of which the expenditure was incurred should be seen in its true perspective. (at p392)

3. Kitto J. has fully recited the relevant facts and circumstances and it is unnecessary for us to reiterate them. But it is of some importance to observe that his Honour found that, although most of the piles upon which the slipway was originally constructed were used in connexion with the new work, what the appellant obtained by its expenditure was, to all intents and purposes, a new slipway. Substantially the whole of the slipway was demolished, the new work was executed in concrete and the new slipway was substantially longer. Each of these and other factors referred to by Kitto J. may not, singly, be thought to be decisive of the question before us and they would, of course, carry less weight if, as the appellant contended, what was done should properly be regarded as work done to restore part only of an entirety. The entirety, it is said, consisted, either, of the whole of the partnership's premises on which its business was conducted and in connexion with which the slipway was used or, alternatively, of a number of what were called components and which together were said to constitute the slipway. These components are identified as the slip, the cradle employed upon it, the hauling machinery by which the cradle is moved and the dolphins and warping winches by means of which vessels are manoeuvred onto the cradle. This method of approach to the problem was rejected by the learned judge of first instance and we have no doubt that he was right. It would be artificial in the extreme to approach the problem in either of the suggested ways for the slipway was, in itself, a very substantial erection and the real question for decision was whether the work which was done was done in the execution of repairs to it. As we see the problem the answer to this question could not be affected by the fact that there were other buildings or erections on the appellant's premises or by the fact that, on the premises, there were appurtenances, such as those described, for use in connexion with the slipway. On this branch of the case the appellant relied strongly on cases such as Rhodesia Railways Ltd. v. Collector of Income Tax, Bechuanaland (1933) AC 368 and Morcom v. Campbell-Johnson (1956) 1 QB 106 , but in our view those cases are clearly distinguishable. The question, of course, is one of fact and degree and the decision in the latter case proceeded on the basis that "the renewals effected constituted no improvement; they merely made good the line so as to restore it to its original state". Here the work which was undertaken was, we think, properly described by the contractors in their letter by which their estimate for the proposed work was confirmed - "reconstruction of your No. 1 slipway". As we see it the case rather resembles Lister v. Lane & Nesham (1893) 2 QB 212 ; Torrens v. Walker (1906) 2 Ch 166 ; and Lurcott v. Wakely & Wheeler (1911) 1 KB 905 and the observations of Buckley L.J. in the lastmentioned case are peculiarly appropriate: "Repair is restoration by renewal or replacement of subsidiary parts of a whole. Renewal, as distinguished from repair, is reconstruction of the entirety, meaning by the entirety not necessarily the whole but substantially the whole subject matter under discussion" (1911) 1 KB, at p 924 . We have no doubt that the work in question was not the work of repair and we agree with Kitto J. in thinking that the expenditure was not of the character specified in s. 53. (at p394)

4. The other question which arises is concerned with the appeal in relation to the earlier year. Originally the expenditure claimed as a deduction in respect of that year was allowed as such but an amended assessment was issued on 20th November 1957 and the effect of this assessment was to disallow the deduction. The appellant's contention is that prior to the original assessment in respect of this year there had been a full and true disclosure of all the material facts necessary for his assessment in respect of that year. This contention also failed before Kitto J. We agree with his Honour that, although there was no attempt to misrepresent or conceal facts, there was not a full and true disclosure within the meaning of s. 170 of the Act. In the circumstances we think it unnecessary to add anything to what his Honour said and the appeals should, therefore, be dismissed. (at p394)

ORDER