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Ravenshoe Tin Dredging Ltd v Federal Commissioner of Taxation [1966] HCA 86; (1966) 116 CLR 81 (13 May 1966)

CATCHWORDS

HEARING

DECISION

(a) all allowable deductions which relate to that income ; and
(b) so much of any other allowable deduction as, in the opinion
of the Commissioner, may appropriately be related to
that income,

2. It is common ground that after deducting specified deductions, which are not in question, from what were characterized in an annexure to the appellant's return as its net profits for the relevant year there remained an amount of 174,873 pounds. But this was not the taxable income of the appellant for it was entitled, pursuant to s. 80 of the Act, to take into account losses made during previous years amounting to 142,034 pounds. The difference between the methods employed by the appellant and the respondent in calculating the amount of the former's exempt income results from the manner in which, respectively, they sought to deduct the amount of these losses. The appellant, purporting to apply the provisions of s. 23A, calculated one-fifth of the amount of 174,873 pounds - 34,974 pounds - and deducted the latter amount from the former figure, producing an amount of 139,899 pounds. Thereafter it set off the amount of its previous losses, first of all against the amount of 34,974 pounds, which it regarded as exempt income for the purposes of s. 80, and then the balance of its losses - 107,060 pounds - against the figure of 139,899 pounds, leaving as its taxable income the amount of 32,839 pounds. The respondent, on the other hand, deducted from the amount of 174,873 pounds the total amount of the appellant's past losses - 142,034 pounds - producing a figure of 32,839 pounds and treated one-fifth of this amount - 6,568 pounds - as exempt income for the purposes of s. 23A. The difference between these last two figures - 26,271 pounds - he then treated as the appellant's taxable income. In other words, he treated the total amount of the past losses as deductions of the character specified in par. (a) of s. 23A (1). That is to say, he treated the total amount of the past losses as allowable deductions relating to the appellant's assessable income. It is contended that this method of assessment was erroneous for the deduction for which s. 80 (2) (b) provides is, in the first place, a deduction from exempt income, which is not assessable income, so that in order to apply the provisions of s. 80 (2) (b) the amount, if any, of the taxpayer's exempt income must first be ascertained. (at p83)

3. For the respondent, however, it is contended that the appellant did not derive any exempt income within the meaning of that expression as it is used in s. 80 (2) and that it is impossible to treat any part of its income as "net exempt income" as defined in s. 80 (3). Accordingly, it is said, the deduction of the appellant's past losses must be made from its assessable income before finally ascertaining the amount one-fifth of which is treated by s. 23A as income exempt from income tax. In support of the respondent's contention reference was made to other sections of the Act, in particular many paragraphs of s. 23, which place outside the category of assessable income particular kinds of income and it was pointed out that s. 80 (2), which was to be found in the Act prior to the enactment of s. 23A, was designed, so far as its references to exempt income and net exempt income are concerned, to deal with cases of that character. Accordingly it was necessary to provide that net exempt income, and not the whole of the exempt income, should be first of all applied in making up past losses. So sub-s. (3) of s. 80 defined the "net exempt income" of a taxpayer to mean for the purposes of the section " . . . the amount by which his exempt income derived from all sources exceeds the sum of the expenses . . . incurred in deriving that income . . . ". It is, it is said, impossible to fit into the scheme of the section income exempted from tax which is, itself, a net amount and which as the provisions of s. 23A (1) acknowledge, initially forms part of a taxpayer's assessable income. (at p84)

4. As I see the case, however, the problem falls to be resolved by a consideration of the meaning and substantial effect of s. 23A (1). If it appears that in the application of that section past losses should not be taken into account until after ascertainment of that part of a taxpayer's income which it provides shall be exempt from income tax then the appeal must succeed and the exempt income, which is a net amount, treated as "exempt income" and "net exempt income" for the purposes of s. 80. If, on the other hand, the section reveals an intention that past losses are to be regarded for the purposes of the section "as allowable deductions which relate to that income", that is, the taxpayer's assessable income, then the appeal must fail. (at p84)

5. For the appellant it is asserted that one-fifth of the "amount remaining" ascertained in accordance with s. 23A is by force of the section removed from the category of assessable income. It is an amount which is "exempt income" as defined by s. 6 and is removed from the category of assessable income (s. 25) though the starting point for the calculation which the section requires to be made is the taxpayer's assessable income or, perhaps, more precisely, the amount which would constitute his assessable income were it not for the provisions of s. 23A (1). That being so it is impossible, it is contended, to say what part, if any, of the past losses can be said to relate to the taxpayer's assessable income until the amount of exempt income has been calculated. The submission is reinforced by reference to the fact that until 1942 the whole of a taxpayer's income derived from activities similar to those of the appellant was assessable income and it is asserted that, in these circumstances, the prototype of s. 23A was enacted for the purpose of removing from that category a part of the income derived from the carrying on of such activities. Further it was pointed out that in cases arising under provisions such as, for example, s. 23 (o) the degree of tax relief afforded is, in substance, measured only by a net amount for the effect of s. 51 is to exclude as deductions losses and outgoings incurred in relation to the gaining or production of exempt income and it was suggested that by s. 23A it was intended to provide a partial exemption of much the same character. (at p85)

6. There may be something to be said for this point of view but on the whole I do not think the language of the section supports it. The starting point of the calculation which the section requires to be made is the assessable income of the taxpayer, or where he derives other income, so much of his assessable income as is attributable to the specified activities. Accordingly the figure taken as the starting point includes the amount which the section subsequently declares to be exempt from income tax. There is then to be deducted from the assessable income, or such part of it, "all allowable deductions which relate to that income and so much of any other allowable deduction as, in the opinion of the Commissioner, may appropriately be related to that income". It may be that s. 23A was framed without consideration of the problem which arises in this case, but what the section plainly enough requires is that where a taxpayer's assessable income is wholly derived from activities of the kind prescribed a net amount shall be ascertained by reference to the taxpayer's assessable income and to "all allowable deductions which relate to that (assessable) income". In other words, it requires an account to be constructed which takes, on the one side, the whole of the taxpayer's assessable income and, on the other side, all allowable deductions which relate to that assessable income. Until that account has been constructed it is impossible to say whether the taxpayer has any income which is exempt from income tax within the meaning of s. 23A and, for the purpose of constructing it, regard may properly be had to s. 80 which allows a deduction of past losses from assessable income. Such a deduction is, for the purpose of constructing such an account, an allowable deduction "relating to" the taxpayer's assessable income. (at p85)

7. In such cases the effect of the section is not to remove a portion of a taxpayer's income from the category of assessable income but rather to exempt from liability to tax part of his taxable income assessed in accordance with the Act. But as the section is designed to deal also with cases where a taxpayer derives part only of his assessable income from activities of the character specified, it was not possible simply to express the extent of the exemption by reference to a proportionate part of a taxpayer's taxable income, for it by no means follows that allowable deductions relating to assessable income derived from activities of the specified character will bear the same ratio to the total amount of deductions relating to the total assessable income, as assessable income of the former character bears to total assessable income. It is for this reason, no doubt, that the section requires a separate account to be constructed starting with that part of the assessable income which is attributable to activities of the specified character, and thereafter, stipulates that there shall be deducted from that assessable income all allowable deductions which relate to that income whilst, at the same time, the section authorizes the Commissioner, by par. (b), to make an appropriate apportionment "of other allowable deductions", that is to say, deductions which relate to the taxpayer's assessable income generally some part of which can be related only by an appropriate apportionment to that part of the taxpayer's assessable income which has been derived from activities of the specified character. (at p86)

8. For these reasons the appeal should, in my opinion, be dismissed. (at p86)

9. From this decision the appellant appealed to the Full High Court. ( at p86)

10. N. H. Bowen Q.C. (with him L. J. Priestley and A. M. Gleeson), for the appellant. The exempt amount under s. 23A of the Income Tax and Social Services Contribution Assessment Act should be calculated first, and then s. 80 (2) (b) of the Act should be applied so as to set off losses brought forward successively from that exempt amount and then from the remaining assessable income. This is consistent with s. 23A, for past losses do not "relate to" income of the later year, and the income on which the exempt amount is based is found by the prior deduction only of deductions that "relate to" that income. The expression "assessable income" in s. 23A (1) refers to the provisional assessable income which is subject to a diminution by the operation of that section. (at p86)

11. A. F. Rath Q.C. (with him C. S. C. Sheller), for the respondent. When account is to be taken of losses within s. 80, and there is also an amount to be exempted under s. 23A, it is necessary at the beginning to ignore s. 23A and to make the appropriate subtractions under s. 80 (2) (a), and not under s. 80 (2) (b), because the amounts exempted pursuant to s. 23A are not "exempt income" within s. 80 (2) (b), since s. 80 originated in the Act of 1936, where "exempt income" referred to sums of money exempt as received, and not to amounts determined to be exempt not as at the time of receipt, but by reference to later calculation, such as under s. 23A, which was introduced as a wartime measure (and thus in s. 23A an amount is said to be "exempt", but not to be "exempt income"). Further, as the amount of exempt income under s. 23A must be determined by applying it to the facts, it cannot be determined until the deductions referred to in s. 23A (1) have been made, and since s. 80 losses are deductions "relating to" income within the meaning of s. 23A (1) (a), these losses are deducted first, and then the exempt income is calculated as one-fifth of what remains. "Relate" is a word of every wide import. None the less, not all losses in prior years will relate to the income in question and so fall under s. 23A (1) (a), and accordingly it was deemed appropriate to confer a discretion under s. 23A (1) (b), as to deductions not necessarily so related. A question may therefore arise whether the expenditure which led to the loss led to, or was associated with, the earning of income in the later year or whether an appropriate opinion has been formed by the Commissioner. Another possible view of the word "relate" is that it includes all deductible amounts: see Ronpibon Tin N.L. and Tongkah Compound N.L. v. Federal Commissioner of Taxation [1949] HCA 15; (1949) 78 CLR 47, at p 56 . (at p87)

12. N. H. Bowen Q.C., in reply.
Cur. adv. vult. (at
p87)

1966, May 13.

The following written judgments were delivered:-
BARWICK C.J. The appellant taxpayer in the year of income ending in June

2. As tin is a prescribed metal or mineral within the meaning of s. 23A (1) of the Act, the appellant was entitled to have an amount of its income, which might otherwise be subject to income tax, exempt from such tax. (at p88)

3. The controversy between the appellant and the respondent Commissioner of Taxation is as to the use to be made of the amount of the unrecouped "losses" in the calculation of the appellant's taxable income, having regard to the terms of s. 23A (1) and of s. 80 of the Act. The respondent Commissioner calculated the taxable income of the appellant by first deducting from the amount of the said "net profits" from the mining operations the amount of the unrecouped "losses" and then applying the provisions of s. 23A (1) to the balance treating that balance as the assessable income within the meaning of that section. He assessed the appellant to tax accordingly. The appellant appealed to this Court against this assessment, claiming that the proper method of computing its taxable income is first to deduct from the amount of the said "net profits" an amount equal to one-fifth thereof, and thereafter to deduct the amount of the unrecouped "losses" from the remaining four-fifths. The balance, according to the appellant, was its taxable income. (at p88)

4. The contentions of the parties are set out by my brother Taylor in his judgment on the hearing of the appeal against the assessment, and I have no need to repeat them, or the precise figuring which each party derived from them. These submissions were repeated in the hearing of this appeal from his Honour's order dismissing the appellant's appeal against the assessment ; but, as it seems to me, much greater emphasis has been placed before this Court on the significance of the word "relates" in s. 23A (1) and upon the nature of the "losses" which s. 80 makes deductible than would appear to have been the case in the argument before his Honour. (at p88)

5. It is convenient first to set out the precise terms of relevant parts of each section :

"80. (1) For the purposes of this section, a loss shall be deemed to be incurred in any year when the allowable deductions (other than the concessional deductions and the deductions allowable under this section) from the assessable income of that year exceed the sum of that income and the net exempt income of that year, and the amount of the loss shall be deemed to be the amount of such excess.

(2) So much of the losses incurred by a taxpayer in any of the seven years next preceding the year of income as has not been allowed as a deduction from his income of any of those years shall be allowable as a deduction in accordance with the following provisions:

(a) where he has not in the year of income derived exempt
income, the deduction shall be made from the assessable
income ;
(b) where he has in that year derived exempt income, the
deduction shall be made successively from the net exempt
income and from the assessable income ;
(c) where a deduction is allowable under this section in respect
of two or more losses, the losses shall be taken into account
in the order in which they were incurred.

(3) In this section 'net exempt income' means-

(a) where the taxpayer is a resident - the amount by which
his exempt income derived from all sources exceeds the
sum of the expenses (not being expenses of a capital
nature) incurred in deriving that income, and any taxes
payable in respect of that income in any country outside
Australia or under the Income Tax Ordinances of the
Territory of Papua and New Guinea ;"

(a) all allowable deductions which relate to that income ;
and
(b) so much of any other allowable deduction as, in the
opinion of the Commissioner, may appropriately be
related to that income,

6. It is at once apparent, in my opinion, that the Act contemplates that the deductions authorized by s. 80 will be made at a point in the computation of the taxable income after the amount of net exempt income (if any) has been ascertained. Section 23A (1) does provide for the computation of an amount of exempt income for, in my opinion, the sum calculated in accordance with that section is exempt income within the meaning of that expression as defined. Accordingly, one might well expect from the language of s. 80 itself that the relevant application of s. 23A (1) to the taxpayer's circumstances would be complete before occasion arose to apply s. 80. (at p90)

7. The use of the expression "assessable income" both in s. 23A (1) and in s. 80 (1) (a) was suggested as a difficulty in the way of the appellant's contention to the above effect. But it is clear that the expression "assessable income" is not used throughout the Act inflexibly with the same denotation. In my opinion, the mere use of the adjective "assessable" in s. 23A (1) to denote the income with respect to which a calculation is to be made does not compel the conclusion that this is the same amount of income as that against which s. 80 requires the "losses" of which it speaks to be put. An examination of s. 23A (1) shows, I think, that the reference to assessable income in that section is clearly not a reference to the same sum as is mentioned in s. 80 (2) (a). What s. 23A (1) directs is a calculation to determine an amount of exempt income. It assumes that there is an amount of income which has been derived from the sale of a prescribed metal or mineral and which, apart from the section, would continue wholly to be assessable income. It directs that a fraction of this amount of income shall be set aside as exempt income and thus no longer a component of the assessable income. Section 25 does at least require that exempt income shall not be included in that assessable income which is to become the taxable income. Section 23A (1) does not provide for a deduction but for an exclusion. (at p90)

8. But the matter is advanced further in favour of the appellant's submissions, when the terms of s. 23A (1) are further considered. In my opinion, it would be difficult, to say the least, having regard to the evident purpose of s. 23A (1) to read assessable income as meaning the described assessable income after all deductions for which the Act provides have been made; for the section in subpar.

(a) is careful to qualify the deductions of which it speaks. The allowable deductions to be made from the assessable income from the sale of prescribed metals or minerals are to be those which "relate" to that income. The allowable deductions in the nature of losses or outgoings within the meaning of s. 51 and which relate solely to the production of the income from the sale of prescribed metals or minerals will not be difficult to identify. Where such a loss or outgoing does not relate solely to the production of such income, sub-par. (b) of s. 23A (1), in my opinion, enables the Commissioner to apportion an expenditure, being an allowable deduction, so as to determine what part of it ought to be regarded as related to the production of that income. In my opinion, that is the function of that sub-paragraph. The word "relate" in sub-par. (a) of that section, in my opinion, describes only those allowable deductions which solely relate to the production of the income from the sale of the prescribed metal or mineral. (at p91)

9. In the case in hand, the whole amount of the deductible losses resulted from the carrying on of the mining operations which resulted in the sale of tin. But if such "losses" could be regarded as relating to the production of income in a subsequent year, subpar.

(b), in my opinion, would authorize the Commissioner to apportion the "losses" in a case where the losses were derived from more than one kind of operation so as to apply to the income derived from the sale of the metal or mineral that part of the losses which he regarded as related to that income. (at p91)

10. However, in my respectful opinion, losses resulting from operations in past years cannot be regarded as in any relevant sense "related" to the income of the current year. Once annual accounting to ascertain assessable income is undertaken, apart from special statutory provisions, the financial experience of the year is, as it were, isolated from earlier and from subsequent years: so to speak, it is self-contained. This is true, in my opinion, though the closing balances of one year became the opening figures for the next year's accounting. By contrast the balance sheet, in its item of accumulated profits or losses, whether carried into an item of shareholders' funds or kept in an appropriation account, endeavours to overspan the annual accounting in relation to profits or income, so as to reflect the total experience of the enterprise to date. The losses of prior years, in my opinion, have no place in an annual account of profits or of income. They are neither of the nature of a receipt nor of a disbursement in or relating to that year. (at p91)

11. Apart from the general position in annual accounting, s. 23A (1) of the Act seems to me to intend to exempt from income tax a portion of the income derived from the sale in the year of tax of the prescribed metal or minerals diminished by the amount of allowable deductions which the gaining or production of that income in that year attract, either wholly or partly, in the latter case an apportionment being made. The idea of setting against that net income, losses of prior years, in my opinion, is quite foreign to the purpose and intention of the section. (at p91)

12. Further, when the real nature of a deductible "loss" is considered, the matter becomes to my mind even clearer. First, these "losses" are not themselves actual expenditures either in the tax year, or for that matter in any year nor need they necessarily result from any actual expenditure. They are derived from the operation of the Act, perhaps partly from what it includes (or excludes) in or from assessable income and perhaps partly from the deductions which it permits from that assessable income. Thus, they are figures arrived at by setting against the assessable income gained or produced in a year the appropriate amounts of allowable deductions, which have proved to be greater in amount than that assessable income. To the extent to which they are not recouped in accordance with the provision of s. 80, they are aggregated from year to year. These figures, in my opinion, do not "relate" to the income derived in a subsequent tax year. Consequently, the amount of unrecouped losses ought not to be included in the sum by which the assessable income from the sale of tin is to be diminished for the purposes of s. 23A (1). (at p92)

13. In my opinion, the calculation called for by s. 23A (1) should be made before the application of s. 80: the assessable income of which s. 80 (2) (a) speaks should not include any exempt income and, in particular, should not include the amount resulting from the calculation called for by s. 23A (1) and, lastly, in that calculation, no part of the unrecouped losses within s. 80 should be deducted from the "net income" derived from the sale of the prescribed metal or mineral. (at p92)

14. It follows, in my respectful opinion, that this appeal should be allowed, the respondent's assessment of the appellant's income tax for the year ending June 1961 should be set aside, the amount of the appellant's taxable income as shown in such assessment be increased to the sum of 32,839 pounds and the appellant assessed to tax accordingly. (at p92)

MENZIES J. The facts to which s. 23A (1) and s. 80 of the Income Tax and Social Services Contribution Assessment Act 1936-1961 (Cth) have here to be applied are set out in the judgment of Taylor J., from which this appeal has been brought, and in the judgment of Owen J., which I have had the advantage of reading. I will not repeat them and I propose to do no more than state shortly my reason for thinking that, upon those facts, the taxpayer is entitled to succeed. (at p92)

2. The assessment in question depended upon treating the taxpayer's losses of previous years as deductions relating to the taxpayer's income of the year of tax. With this I cannot agree. It seems to me that the problem to which s. 23A (1) gives rise is not unlike that which has often arisen under s. 50 of the Act and, for the requisite relationship to exist between the income and the deduction, there must be some specific connexion between the two amounts in question. It is not enough that one is assessable income and the other is an allowable deduction. I have not been able to find any sufficient connexion here between the past losses and the current income, notwithstanding that it may be assumed that what the taxpayer spent in past years prepared the way for the making of profits in later years, including the year of tax. Past losses, however, which arose simply because receipts did not match expenditure, did not themselves contribute to present profits. (at p93)

3. Because I think that the assessment was accordingly made upon a wrong basis, I am of the opinion that the appeal should be allowed and the assessment varied by increasing the amount of the income exemption under s. 23A of the Act from 6,568 pounds to 34,974 pounds, in which case the taxable income should be increased from 26,271 pounds to 32,839 pounds. (at p93)

OWEN J. This is an appeal from an order made by Taylor J. dismissing an appeal by the company against its assessment to income tax for the year ending 30th June 1961. During that year the whole of the company's revenue was derived from tin-mining operations carried on by it in Queensland. This was its sole activity and at all material times tin was a prescribed metal or mineral within the meaning of s. 23A (1) of the Income Tax and Social Services Contribution Assessment Act 1936-1961 (Cth). That sub-section, so far as material to the present case, provides that (at p93)

2. "Where a person carries on mining operations in Australia . . . for the purpose of . . . the production of a prescribed metal or mineral, an amount equal to one-fifth of the amount remaining after deducting from so much of the assessable income of that person as is attributable to the production . . . of the prescribed metal or mineral . . . -

(a) all allowable deductions which relate to that income; and
(b) so much of any other allowable deduction as, in the
opinion of the Commissioner, may appropriately be
related to that income,

3. "(2) So much of the losses incurred by a taxpayer in any of the seven years next preceding the year of income as has not been allowed as a deduction from his income of any of those years shall be allowable as a deduction in accordance with the following provisions: -

(a) where he has not in the year of income derived exempt
income, the deduction shall be made from the assessable
income;
(b) where he has in that year derived exempt income, the
deduction shall be made successively from the net exempt
income and from the assessable income;
(c) . . . (at p94)

4. (3) In this section 'net exempt income' means - (a) where the taxpayer is a resident - the amount by which

his exempt income derived from all sources exceeds the
sum of the expenses (not being expenses of a capital
nature) incurred in deriving that income . . . ".

5. The rival contentions can perhaps best be illustrated by stating the method of calculation adopted by the company on the one hand and that adopted by the Commissioner on the other. Each began with the figure of 174,873 pounds, representing the difference between the gross income from the production of tin and what, for the sake of brevity, I will call the sum of the s. 51 deductions and the other deductions of 72,015 pounds. The company took one-fifth of 174,873 pounds, namely 34,974 pounds, as being income exempt from tax under s. 23A. This left 139,899 pounds and from that amount it deducted what I will call its available s. 80 losses of 142,034 pounds by applying par. (b) of s. 80 (2). It set 34,974 pounds against its exempt income of 34,974 pounds and the balance of the losses, amounting to 107,060 pounds, against its "assessable income" of 139,899 pounds. This left the figure of 32,839 pounds and this it claimed to be the amount upon which its tax should be assessed. The method of calculation thus adopted by it was based upon the submissions that a s. 80 loss is not within the words "all allowable deductions which relate to that income" in s. 23A (1) (a), "that income" being "so much of the assessable income . . . as is attributable to the production or is derived from the sale of the prescribed metal or mineral produced by "the mining operations referred to in the section, and that, under s. 80 (2) (b) the amount of "exempt income" and the amount of "assessable income" to which s. 80 refers must be ascertained before it is possible to make the allocation for which s. 80 (2) (b) provides. (at p95)

6. The method of calculation applied by the Commissioner was based upon the view that a s. 80 loss is one of the "allowable deductions which relate to that income" within the meaning of s. 23 (1) (a). He took 174,873 pounds as his starting figure and from it deducted 142,034 pounds, the amount of the available s. 80 losses. This left a balance of 32,839 pounds. One-fifth of that amount, namely 6,568 pounds, was thus arrived at as being the amount exempt from tax under s. 23A. This left 26,271 pounds as the taxable income and on that he assessed the company. On the face of it, the result at which the Commissioner arrived was more favourable to the company than was the figure claimed by it to be its taxable income but no doubt s. 44 explains the somewhat unusual circumstance that a taxpayer should be complaining that his taxable income is larger than that on which he has been assessed. (at p95)

7. The first question to be determined is whether the deduction of losses incurred in earlier years which s. 80 allows to be made is a deduction which "relates" to the company's revenue from its tin-mining operations during the year ended 30th June 1961. I find it difficult to see how a loss made in a previous year or years can fairly be said to "relate" to the income of a later year. I can understand that, in an appropriate case, expenditure in an earlier year may properly be said to relate to the income of a later year as, for example, when that expenditure has been incurred in carrying out work which will bear fruit in later years. But what s. 80 allows to be deducted is not expenditure in earlier years but the loss resulting from the fact that the expenditure in that earlier accounting period has exceeded the revenue for that period. If s. 23A (1) (a) has the meaning for which the Commissioner contends, it is difficult to see why the draftsman would have said more than "all allowable deductions". But he went further and confined the "allowable deductions" to those which "relate" to the income earned from mining operations in the accounting period. A further objection to the method of calculation adopted by the Commissioner seems to me to arise from the terms of s. 80 (2) (a) and (b). Those provisions plainly contemplate that before any deductions for past losses are made, it must first be determined whether any part, and if so how much, of the taxpayer's income is "net exempt income" and how much represents his "assessable income", because it is first from his "net exempt income" and then from his "assessable income" that the deductions are to be made, yet the Commissioner's method is to deduct the available amount of s. 80 losses not first from the "net exempt income" and then from the "assessable income" but from the sum which contains both these components and before ascertaining how much of that sum represents "net exempt income" and how much "assessable income". In other words, the Commissioner's method seems to me to disregard the directions laid down by s. 80 (2) (a) and (b). It was said that difficulties in the way of adopting the company's method arise from the use in s. 80 of the words "net exempt income" and the definition of those words in s. 80 (3). As I have said earlier, the two sections do not easily run together but the amount which s. 23A exempts from tax is arrived at after making all allowable deductions which relate to the income attributable to the mining operations with which the section deals. It is a net figure and should, I think, be treated for the purposes of s. 82 (2) (b) as being the "net exempt income" against which the losses of previous years are first to be set. (at p96)

8. For these reasons I am of opinion that the company's contention should prevail but I should, I think, say something about s. 23 (1) (b). That paragraph is, I think, designed to enable the Commissioner in an appropriate case to apportion an amount claimed as a deduction where part only of it is related to carrying out the operations to which s. 23 (1) refers. For example, where a taxpayer is carrying on mining operations and at the same time conducting a general store and incurs expenditure for a purpose which is common to both branches of his business. In such case s. 23A (1) (b) gives the Commissioner a discretion to determine how much of that total expenditure may appropriately be related to the revenue earned in carrying out the mining operations. (at p96)

9. I would allow the appeal. (at p96)

ORDER