Commissioner of Taxes (SA) v Robertson [1930] HCA 32; (1930) 44 CLR 230 (22 September 1930)

HIGH COURT OF AUSTRALIA

The Commissioner of Taxes (South Australia) Appellant; and Robertson Respondent.

H C of A

On appeal from the Supreme Court of South Australia.

22 September 1930

Gavan Duffy, Rich and Dixon JJ.

Cleland K.C. (with him J. C. Martin), for the appellant.

Mayo K.C. (with him Astley), for the respondent.

Cleland K.C., in reply.

The Court delivered the following written judgment:—

Sept. 22

Gavan Duffy, Rich and Dixon JJ.

The respondents are wholesale grocers and manufacturers. From their gross income derived from that business in South Australia during the twelve months ended 30th September 1924, they claimed to deduct, in arriving at their taxable income, the expenditure they incurred in making some replacements of things used in their business. They replaced two lift-doors which, by reason of wear and tear, had reached a condition of uselessness, two bicycles and a billing machine which had reached a like condition, and five motorcars which, because of wear and tear, were no longer useful for the purpose for which they were required in the business. They also replaced five horses which had become so lame and disabled by reason of their work as to be useless.

The question for determination is whether this expenditure may be deducted under the provisions of the Taxation Acts 1915 to 1926 which are now repealed by the Taxation Act 1927. Sec. 22 of these enactments provides that, subject to the other provisions of Part V. of the Acts, the taxable amount of the income of the taxpayer shall be ascertained as follows:—"x. The gross amount of the income having been ascertained, the net income shall be fixed by deducting all losses, outgoings, and expenses not being losses or outgoings of capital actually incurred by the taxpayer in the production of the income." Sec. 26 (V.) provides that, in calculating the taxable amount of any income, no deduction shall be made in respect of "the cost of the supply of any implements, utensils, or articles employed for the purposes of the trade, except those supplied in substitution of others which have become useless from wear and tear." It is clear that what the taxpayers, respondents, claimed to deduct and, under the judgment of the Courts below, have been allowed to deduct, is the cost of the supply of things employed for the purposes of the trade in substitution of others, and under the terms upon which special leave was granted, the appellant, the Commissioner of Taxes, is precluded from disputing that the things thus replaced had become useless from wear and tear. It follows that, unless the things so supplied do not fall within the description "implements, utensils, or articles," they must come within the exception expressed in sec. 26 (V.). We see no reason to give a restricted meaning to the phrase "implements, utensils, or articles." It is true that the words come from what is now rule 3 (d) to Schedule D, Cases 1 and 2, of the Income Tax Act 1918 of Great Britain, and that, because by rule 6 a deduction is allowed for depreciation of plant, it may be proper to give the phrase a limited meaning in that statute. In the Taxation Acts 1915 to 1926 of South Australia, however, there is no provision expressly allowing a deduction for depreciation of plant, and we think that there is no reason for limiting the expression which is introduced into a very different context. We are, therefore, of opinion that the things mentioned are articles employed for the purposes of the trade supplied in substitution of others which have become useless through wear and tear. It is contended, however, by the Commissioner that the exception of the articles supplied in substitution for others which have become useless from wear and tear in sec. 26 (V.) does not affirmatively give to the taxpayer a right to a deduction because it neither expresses nor implies an intention to authorize the deduction of the cost of such supply. But it cannot be doubted that the exception amounts to a distinct legislative recognition that such a deduction may be allowable. This is explained, according to the the contention of the appellant, by the fact that sec. 22 (X.) originally contained no exclusion of losses or outgoings of capital and was therefore expressed in such a way as to authorize the deduction of all losses, outgoings and expenses actually incurred in the production of the income. It is said that, when the words "not being losses or outgoings of capital" were inserted in sec. 22 (X.), they operated to prevent the deduction of the cost of supplying implements, utensils or articles in substitution for others employed for the purposes of the trade, whenever that cost was a loss or outgoing of capital. But sec. 22 (X.) in the form which it assumed as a result of the amendment must be read together with sec. 26 (V.). Sec. 22 begins with the words "Subject to the other provisions of this Part," one of which is sec. 26 (V.). We think it is impossible to treat the recognition of the costs of substitution contained in sec. 26 (V.) as doing no more than keeping open the question whether such cost should be allowed under sec. 22 (X.). If it does not, in itself, amount to an affirmative allowance of this deduction, it at least prevents the words "not being losses or outgoings of capital" in sec. 22 (X.) receiving an application which would exclude this cost from the allowance, authorized by that provision, of expenses actually incurred in the production of income. The scheme of the Acts appears to be to compare actual gross income with actual expenditure, and not to allow a deduction for depreciation. In such a scheme the replacement of plant progressively or periodically would naturally be considered a revenue item.

Another view which leads to the same result is that, in sec. 22 (X.) as amended, the omission of the word "expenses" from the exception of "losses or outgoings of capital" was not accidental, but was designed to leave unaffected the deduction of anything which may be properly considered an expense of conducting a business, as, for instance, the cost of supplying the articles we have described in substitution for those which have lost their usefulness. We do not find it necessary to discuss the question how far the phrase "losses or outgoings of capital" applies, if at all, to expenditure which would ordinarily be considered a proper deduction from profits in order to arrive at net income. While we express no dissent from the opinions expressed by the learned Chief Justice of South Australia and by Napier J. upon this subject, we think it is enough for the purposes of this case to say that the presence of the exception in sec. 26 (V.) is a clear indication that the words introduced into sec. 22 (X.) do not operate to prevent the deduction of the cost of the supply of implements, utensils or articles employed for the purpose of the trade, if supplied in substitution of others which have become useless by wear and tear.

For these reasons the appeal should be dismissed.

Appeal dismissed with costs.

Solicitors for the appellant, A. J. Hannan, Crown Solicitor for South Australia.

Solicitors for the respondent, Magarey, Finlayson, Mayo & Astley.