Federal Commissioner of Taxation v Henderson [1943] HCA 48; (1943) 68 CLR 29 (4 June 1943)

HIGH COURT OF AUSTRALIA

H C of A

5 April 1943

Williams J.

Ham K.C. and Mulvany, for the appellant.

Fullagar K.C. and H. Walker, for the respondent.

April 5

Williams J

. delivered the following written judgment:—

This is an appeal by the executrix of A. M. Henderson who died on 25th February 1941 against two amended assessments dated respectively 7th September and 27th September 1939, made by the respondent Commissioner under the provisions of the Income Tax Assessment Act 1936-1938 in respect of the financial year ended 30th June 1939 based upon his income earned during the financial year ended 30th June 1938.

By the first of these amended assessments the Commissioner included in his assessable income the sum of £3,900 received from a company incorporated in the State of New South Wales on 11th October 1937 named Gold Dumps Pty. Ltd., and by the second of these amended assessments he disallowed a sum of £1,000 paid in April 1938 for calls on 2,000 shares of £1 each in that company.

The £3,900 represented the par value of 3,900 out of 6,000 fully paid shares of £1 each which the company agreed to allot to him or his nominees under the circumstances hereinafter mentioned, while the £1,000 was paid for calls upon 2,000 additional contributing shares which were subsequently allotted to him by the company.

The deceased had been assessed in the original assessment for £2,100, representing the value of the balance of the 6,000 shares, and had paid the tax without objection, so that his executrix has no right of appeal in respect of this sum. It is common ground that, if he is not liable to be taxed in respect of the £3,900, he ought not to have been taxed in respect of the £2,100; but, if the appeal succeeds, it is a question for the Commissioner and not for this Court whether a refund can and ought to be made in respect of the £2,100.

Of the objections raised by the appellant to the amended assessments she has insisted upon the following at the hearing:—(1) that the whole of the sum of £6,000 or alternatively the sum of £3,900 received by the deceased from Gold Dumps Pty. Ltd. by virtue of an agreement dated 11th October 1937 between Clutha Development Ltd. of the first part, the deceased of the second part and Gold Dumps Pty. Ltd. of the third part was income derived by the deceased as a bona fide prospector from the sale, transfer or assignment by him of his rights to mine for gold in the areas referred to in the agreement in Australia; (2) that the whole of the sum of £6,000 or alternatively the sum of £3,900 is not income in that the property disposed of by the deceased under the agreement was not acquired by him for the purpose of profit-making by sale or for the carrying on or carrying out of any profit-making undertaking or scheme but the whole of the sum of £6,000 or alternatively the sum of £3,900 was a capital receipt; and (3) that the sum of £1,000 paid by the deceased as calls on shares held by him in Gold Dumps Pty. Ltd. is an allowable deduction in that Gold Dumps Pty. Ltd. is a mining company carrying on mining operations for gold and the sum of £1,000 is in respect of calls on shares in a mining company carrying on mining operations in Australia for gold.

The evidence tendered on behalf of the appellant consisted of certain documents, certain admissions, and the oral testimony of Victor Thomas Edquist, an experienced mining engineer and metallurgist, the whole of whose evidence I accept. Mr. Fullagar agreed that the recitals in the documents so far as relevant can be treated as evidence of the facts which they narrate. From this evidence it appears that the deceased was a metallurgist who was interested in improving existing methods of extracting gold from the soil. Until recently, when a process known as the cyanide process was discovered, it was impossible to separate more than the visible gold from the soil, so that the slum dumps scattered about Australia, representing the soil which has been raised from the beds of gold mines and from which the visible gold has been removed, still contain a proportion of gold that is too fine to be seen. Gold had been discovered at Rutherglen in Victoria in what are called deep lead mines. Prior to 1906 these mines had been worked, the soil brought to the surface, and the visible gold extracted. Of the slum dumps that remained, four near Carisbrook were known as "The Napier," "Kong Meng No. 2," "Chalk's No. 1" and "Chalk's Freehold" respectively. These dumps were about three to four acres in extent. The deeper portions were about twenty feet deep and the shallower portions about four feet deep. After the cyanide process was discovered attempts were made to treat these dumps, but they were unsuccessful.

By an agreement made on 12th October 1935, a syndicate, in which the deceased owned a quarter share, secured options over the four dumps, exercisable within six months. These options were duly exercised on 13th December 1935. In July 1936 Clutha Development Ltd., a company incorporated in New South Wales, became the owner of the shares of the members of the syndicate other than that of the deceased. By an agreement made on 11th October 1937 between Clutha Development Ltd., the deceased and Gold Dumps Pty. Ltd. (therein called the purchaser) Clutha Development Ltd. sold to the purchaser for £35,130 its three-quarter share and interest in the four dumps, and its interests in certain other dumps in which the deceased was not interested, and the deceased sold to the purchaser his share and interest in the four dumps for 6,000 shares to be allotted to him or his nominees within one month after the date of the agreement.

Mr. Fullagar admitted that the deceased received the 6,000 shares provided for by the agreement which were allotted as follows:—2,100 to himself and 3,900 to his nominees, that the deceased subsequently purchased 2,000 contributing shares in the capital of the company, and that all these shares were still retained by the deceased or his nominees at the date of his death, the 2,100 and 2,000 shares still standing in his own name and the 3,900 in the names of his nominees in the register of members of the company.

Mr. Edquist described the preliminary work which was done at the four dumps by the deceased or under his direction. The witness said that there are plenty of these dumps in Australia, that there is only one way to find out if they are payable, and that is to bore them and take samples. The boring has to be done in a systematic manner, the lines of the bore holes being laid out so that each hole will represent an even amount of tonnage for the purpose of average values, so that the contents of the bore holes will give a section of the dump from top to bottom for the purpose of assay. He said that many hundreds of samples have to be taken and assayed, and that from the weighed average of the samples the average value of the gold in the dump can be estimated. Following the assay the question is then considered whether there is sufficient gold present to warrant further examination. If there is, the samples are then put through an experimental process which is practically a replica of the method with which it is intended to treat the dump.

Mr. Edquist also described the method by which the gold in the four dumps was treated under the managership of Mr. Henderson. Although the witness did not state specifically that this work was done by Gold Dumps Pty. Ltd., the argument proceeded upon this basis. He said that the deceased used what is called the vacuum filtered process. The slum was first mixed with water into a pulp, and alkaline cyanide with lime of soda or potassium added, which dissolved the gold. The pulp containing the dissolved gold was then filtered to separate the solution from the solids. The solution was then clarified and passed through a precipitating plant which consisted of a small filter charged with finely divided zinc. By bringing the cyanide of gold solution in contact with the finely divided zinc, a chemical reaction took place whereby some of the zinc went into the solution and the gold was deposited in solid form. This was then treated with further chemicals to get rid of the excess zinc, and the residue was washed, roasted and smelted for the recovery of the bullion. He said that the plant for these operations, which had a working capacity of 500 to 600 tons a day, must have cost from £25,000 to £30,000. It was placed in a central position so as to serve all four dumps. The slum was propelled to the treatment plant by subjecting the dumps to a sluicing process. For this purpose the deceased put in pumps which gave water under very high pressure in pipes, the dumps were subjected to a high pressure jet of water from these pipes, and this caused the slum to disintegrate and flow along a main gutter with side gutters to the treatment plant, where the sand and any worthless material was separated by screening, leaving a smooth slimy pulp to subject to the treatment already mentioned.

The burden of proving that an assessment, or an amended assessment, is excessive lies upon the taxpayer: ss. 173 and 190. It is therefore necessary for the appellant to prove, in the language of the objection numbered "2" , which is based upon the definition of contained in s. 6 of the Act, that the profit which the deceased made when he sold his one-fourth share and interest in the dumps to Gold Dumps Pty. Ltd. for 6,000 fully paid shares (and it is not now contested that the value of these shares was £1 each) was not income from personal exertion, because it was a profit arising from the sale by the deceased of a quarter share in property not acquired by him for the purpose of profit-making by sale. Mr. Ham referred to the decision of this Court in Evans v. Deputy Federal Commissioner of Taxation (S.A.)[1] , but the facts in that case were entirely different from the facts in the present case. Applying the principles of construction laid down in the joint judgment of Rich J., Dixon J. and Evatt[2] , I am unable to hold that the dominant purpose actuating the syndicate in acquiring the options over the dumps was to work the dumps itself. The evidence of Mr. Edquist is directly to the contrary. He said that the work which the deceased was doing prior to the sale to Gold Dumps Pty. Ltd. was in the nature of preliminary investigation, that he had a small experimental plant of which he was very proud, that he had often seen him working with his plant, and that he was very keen on experimental work. Of the four members of the syndicate, the deceased appears to have been the only one with any practical knowledge of gold mining and the only one to carry out any experiments on the dumps. The shares of the other three members of the syndicate were first acquired by Clutha Development Ltd. There is no evidence that this company has ever worked a mine. Its name suggests that it is a development company only. When the operations to extract the gold from these dumps (to use a neutral term) were about to commence, the three-fourth share and interest of this company in the dumps was sold for cash to Gold Dumps Pty. Ltd. The latter company was incorporated on the same day as the agreement of purchase was entered into. The appellant has entirely failed to satisfy me affirmatively on the facts with respect to this objection. On the contrary, I am satisfied that the proper inference to be drawn from the facts is that the deceased like the other members of the syndicate acquired his share and interest in these dumps with a view to testing them to ascertain their gold content, and, if the test proved satisfactory, to selling this share and interest at a profit.

The questions that arise on the two remaining objections are (a) whether the sale by the deceased of his share and interest in the dumps was the sale of a right to mine for gold in a particular area within the meaning of s. 23 (p) of the Act; (b) if it was, whether the deceased was a bona fide prospector within the meaning of this sub-section; and (c) (which is largely wrapped with a) whether Gold Dumps Pty. Ltd., which made the calls, was a mining company carrying on mining operations for gold within the meaning of s. 78 (1) (d). Sections 23 and 78 of the Act, so far as material, are in the following terms:—" 23. The following income shall be exempt from income tax:— ... (p) income derived by a bona fide prospector from the sale transfer or assignment by him of his rights to mine for gold in a particular area in Australia or in the Territory of New Guinea. For the purpose of this paragraph, "bona fide prospector" means a person, other than a company, who has personally carried out the whole or major part of the field work of prospecting for gold in the particular area, or who has contributed to the expenditure incurred in the work of prospecting and development in that area, and includes a company which has itself carried out the whole or major part of such work. 78. The following shall ... be allowable deductions:— (1) ... (d) Calls paid by the taxpayer in the year of income on shares owned by him in a mining company or syndicate carrying on mining operations in Australia for gold, silver, base metals, rare minerals or oil, or in any company carrying on afforestation in Australia as its principal business. "

Attention must also be called to s. 23 (o), which exempts "the income derived by a person from the working of a mining property in Australia or in the Territory of New Guinea principally for the purpose of obtaining gold, or gold and copper, provided that in this case the value of the output of gold is not less than forty per centum of the total value of the output of the mine."

The Shorter Oxford English Dictionary, 2nd ed. (1936), and other standard dictionaries describe prospecting as exploring a region for gold and also as working a mine or lode experimentally so as to test its richness. There is a possibility that gold may be found in many localities in Australia, which is the only country with which this appeal is concerned. The prospects of finding gold are of course brighter in some localities than in others. But gold is not worth discovering at all unless it is discovered in payable quantities. It is reasonably certain that disused slum dumps contain fine invisible gold, but it is quite uncertain whether they contain gold which can be recovered in payable quantities, so that in order to ascertain the amount of gold which they contain it is necessary to make the exhaustive preliminary test which Mr. Edquist has described.

Emphasis is laid in s. 23 (p) upon a person who claims the benefit of the sub-section carrying out the whole or a major part of the field work of prospecting for gold in the particular area and upon the contributions which he has made to the expenditure incurred in the work of prospecting and developing the area. The sub-section therefore plainly seeks to encourage qualified persons to go out into the field and to expend their time, energy and money in making the necessary preliminary investigations, and in doing the necessary preliminary development work required to establish the reasonable probability of the presence of gold in a particular area in quantities sufficient to warrant that area being worked as a mine.

The Act, in exempting income from the working of a mining property for the purpose of obtaining gold, and the profits on the sale of rights to mine for gold in a particular area, and in allowing as a deduction calls paid on shares in companies carrying on mining operations for gold, evinces, to my mind, a plain intention to offer a strong incentive to increase the production of gold in Australia. This purpose will only be achieved if the gold is actually won from the earth in which it is contained. In order to effect this purpose, it is just as expedient to encourage persons to carry out the preliminary exploratory tests required to establish the presence of gold in payable quantities in the slum dumps and to encourage companies to establish the necessary expensive plants to recover the gold from such dumps, as it is expedient to induce persons to search for and find gold in payable quantities where it has never been discovered before and to induce companies to establish such plants to work these discoveries.

In each case the preliminary work in the field could be described as prospecting for gold in a particular area, whether that area was a river bed, an old slum dump, or any other likely area. The evidence in the present case proves that the deceased carried out the major part of the field work of testing the four dumps, and that he contributed to the expenditure incurred in the work of prospecting and developing them.

The answers to the questions whether the deceased sold a right to mine for gold in the dumps, and whether Gold Dumps Pty. Ltd. in working the dumps was carrying on mining operations for gold, depend upon the same substantial considerations. Mr. Fullagar contended that the treatment of minerals already won lying on the surface and capable of separate ownership did not constitute mining operations, that the sale of a right to work such minerals and extract gold therefrom was not the sale of a right to mine for gold, and that the work itself was not gold mining. He relied upon the decision of the Court of Appeal in Golden Horse Shoe (New) Ltd. v. Thurgood[3] . In that case the appellant company had purchased dumps similar to the four dumps in the present case with a view to extracting the invisible gold by a new process, presumably similar to the process used by the deceased. The question for determination was whether, in ascertaining the profits for the purpose of the Imperial Income Tax Act 1918, the price paid for the dumps could be taken into account. It was held that, as the tailings were raw material already won and gotten, the amount expended in acquiring them was in the nature of an expenditure on the raw material of the company's trade; and that for the purpose of assessing the company's profits or gains, the cost of the tailings treated during the period of assessment was a proper deduction from the proceeds realized by the sale of the gold extracted. In my opinion the decision has little bearing upon the present appeal, in which the problem is of a different character arising under a different Act. It was not relevant in Golden Horse Shoe (New) Ltd. v. Thurgood[4] to adduce evidence to prove in what generic industrial description the operations of re-treating dumps would fall and no such evidence was given. The expressions "rights ... to mine for gold" and "mining operations ... for gold" used in the Assessment Act are ordinary English expressions, and the determination of their meaning is a question of fact, the duty of the court being to determine what they meant in the vernacular of mining men at the time the Act was passed in 1936. But there is no suggestion that the meaning then was not the same as it is to-day (Federal Commissioner of Taxation v. Broken Hill South Ltd.[5] ). In the Shorter Oxford English Dictionary, 2nd ed. (1936), it is stated that the word "mine" includes, not only the place which yields the minerals, but also the minerals themselves. Mr. Edquist said that in mining parlance the process of extracting the gold from the dumps is called re-treatment, and that re-treatment is one amongst a number of operations which can be described generically as mining operations. He mentioned crushing, sliming, filtering, ground sluicing and bucket dredging as being other instances of mining operations. He said that he was most familiar with lode mining in which the ore is mined underground, brought to the surface, and, after several stages, crushed down until it is fine enough to liberate the gold. He said that portion of the gold is then recovered in metallic form and that any further portion which escaped (presumably he was referring to the tailings) would be either stacked for treatment afterwards if there was not a plant for doing this work, or if there was a plant, it would be run straight into the plant and treated. He said that the whole of this work would be described as mining operations. The only distinction between the operations described by Mr. Edquist and those which took place at Carisbrook was that the re-treatment of the four dumps did not take place until after an interval of thirty years, but the re-treatment was in each case part of the same total process resulting in the complete recovery of the whole of the gold.

I find that the sale of the share and interest of the deceased in the dumps to Gold Dumps Pty. Ltd. was a sale of a right to mine in a particular area, and that the company at the time the calls were made was carrying on mining operations for gold.

The appeal must, therefore, be allowed. The amended assessment of 7th September 1939 must be set aside, so far as it includes the sum of £3,900 received from Gold Dumps Pty. Ltd. The amended assessment of 27th September 1939 must be set aside completely. There must be liberty to apply. The respondent must pay the appellant's costs of the appeal, including any reserved costs.

Appeal dismissed with costs.

Solicitor for the appellant, H. F. E. Whitlam, Crown Solicitor for the Commonwealth.

Solicitors for the respondent, Arthur Phillips & Just.

H C of A

4 June 1943

Latham C.J., Rich and Starke JJ.

Ham K.C. and Mulvany, for the appellant.

Fullagar K.C. and H. Walker, for the respondent.

April 5

Williams J

. delivered the following written judgment:—

This is an appeal by the executrix of A. M. Henderson who died on 25th February 1941 against two amended assessments dated respectively 7th September and 27th September 1939, made by the respondent Commissioner under the provisions of the Income Tax Assessment Act 1936-1938 in respect of the financial year ended 30th June 1939 based upon his income earned during the financial year ended 30th June 1938.

By the first of these amended assessments the Commissioner included in his assessable income the sum of £3,900 received from a company incorporated in the State of New South Wales on 11th October 1937 named Gold Dumps Pty. Ltd., and by the second of these amended assessments he disallowed a sum of £1,000 paid in April 1938 for calls on 2,000 shares of £1 each in that company.

The £3,900 represented the par value of 3,900 out of 6,000 fully paid shares of £1 each which the company agreed to allot to him or his nominees under the circumstances hereinafter mentioned, while the £1,000 was paid for calls upon 2,000 additional contributing shares which were subsequently allotted to him by the company.

The deceased had been assessed in the original assessment for £2,100, representing the value of the balance of the 6,000 shares, and had paid the tax without objection, so that his executrix has no right of appeal in respect of this sum. It is common ground that, if he is not liable to be taxed in respect of the £3,900, he ought not to have been taxed in respect of the £2,100; but, if the appeal succeeds, it is a question for the Commissioner and not for this Court whether a refund can and ought to be made in respect of the £2,100.

Of the objections raised by the appellant to the amended assessments she has insisted upon the following at the hearing:—(1) that the whole of the sum of £6,000 or alternatively the sum of £3,900 received by the deceased from Gold Dumps Pty. Ltd. by virtue of an agreement dated 11th October 1937 between Clutha Development Ltd. of the first part, the deceased of the second part and Gold Dumps Pty. Ltd. of the third part was income derived by the deceased as a bona fide prospector from the sale, transfer or assignment by him of his rights to mine for gold in the areas referred to in the agreement in Australia; (2) that the whole of the sum of £6,000 or alternatively the sum of £3,900 is not income in that the property disposed of by the deceased under the agreement was not acquired by him for the purpose of profit-making by sale or for the carrying on or carrying out of any profit-making undertaking or scheme but the whole of the sum of £6,000 or alternatively the sum of £3,900 was a capital receipt; and (3) that the sum of £1,000 paid by the deceased as calls on shares held by him in Gold Dumps Pty. Ltd. is an allowable deduction in that Gold Dumps Pty. Ltd. is a mining company carrying on mining operations for gold and the sum of £1,000 is in respect of calls on shares in a mining company carrying on mining operations in Australia for gold.

The evidence tendered on behalf of the appellant consisted of certain documents, certain admissions, and the oral testimony of Victor Thomas Edquist, an experienced mining engineer and metallurgist, the whole of whose evidence I accept. Mr. Fullagar agreed that the recitals in the documents so far as relevant can be treated as evidence of the facts which they narrate. From this evidence it appears that the deceased was a metallurgist who was interested in improving existing methods of extracting gold from the soil. Until recently, when a process known as the cyanide process was discovered, it was impossible to separate more than the visible gold from the soil, so that the slum dumps scattered about Australia, representing the soil which has been raised from the beds of gold mines and from which the visible gold has been removed, still contain a proportion of gold that is too fine to be seen. Gold had been discovered at Rutherglen in Victoria in what are called deep lead mines. Prior to 1906 these mines had been worked, the soil brought to the surface, and the visible gold extracted. Of the slum dumps that remained, four near Carisbrook were known as "The Napier," "Kong Meng No. 2," "Chalk's No. 1" and "Chalk's Freehold" respectively. These dumps were about three to four acres in extent. The deeper portions were about twenty feet deep and the shallower portions about four feet deep. After the cyanide process was discovered attempts were made to treat these dumps, but they were unsuccessful.

By an agreement made on 12th October 1935, a syndicate, in which the deceased owned a quarter share, secured options over the four dumps, exercisable within six months. These options were duly exercised on 13th December 1935. In July 1936 Clutha Development Ltd., a company incorporated in New South Wales, became the owner of the shares of the members of the syndicate other than that of the deceased. By an agreement made on 11th October 1937 between Clutha Development Ltd., the deceased and Gold Dumps Pty. Ltd. (therein called the purchaser) Clutha Development Ltd. sold to the purchaser for £35,130 its three-quarter share and interest in the four dumps, and its interests in certain other dumps in which the deceased was not interested, and the deceased sold to the purchaser his share and interest in the four dumps for 6,000 shares to be allotted to him or his nominees within one month after the date of the agreement.

Mr. Fullagar admitted that the deceased received the 6,000 shares provided for by the agreement which were allotted as follows:—2,100 to himself and 3,900 to his nominees, that the deceased subsequently purchased 2,000 contributing shares in the capital of the company, and that all these shares were still retained by the deceased or his nominees at the date of his death, the 2,100 and 2,000 shares still standing in his own name and the 3,900 in the names of his nominees in the register of members of the company.

Mr. Edquist described the preliminary work which was done at the four dumps by the deceased or under his direction. The witness said that there are plenty of these dumps in Australia, that there is only one way to find out if they are payable, and that is to bore them and take samples. The boring has to be done in a systematic manner, the lines of the bore holes being laid out so that each hole will represent an even amount of tonnage for the purpose of average values, so that the contents of the bore holes will give a section of the dump from top to bottom for the purpose of assay. He said that many hundreds of samples have to be taken and assayed, and that from the weighed average of the samples the average value of the gold in the dump can be estimated. Following the assay the question is then considered whether there is sufficient gold present to warrant further examination. If there is, the samples are then put through an experimental process which is practically a replica of the method with which it is intended to treat the dump.

Mr. Edquist also described the method by which the gold in the four dumps was treated under the managership of Mr. Henderson. Although the witness did not state specifically that this work was done by Gold Dumps Pty. Ltd., the argument proceeded upon this basis. He said that the deceased used what is called the vacuum filtered process. The slum was first mixed with water into a pulp, and alkaline cyanide with lime of soda or potassium added, which dissolved the gold. The pulp containing the dissolved gold was then filtered to separate the solution from the solids. The solution was then clarified and passed through a precipitating plant which consisted of a small filter charged with finely divided zinc. By bringing the cyanide of gold solution in contact with the finely divided zinc, a chemical reaction took place whereby some of the zinc went into the solution and the gold was deposited in solid form. This was then treated with further chemicals to get rid of the excess zinc, and the residue was washed, roasted and smelted for the recovery of the bullion. He said that the plant for these operations, which had a working capacity of 500 to 600 tons a day, must have cost from £25,000 to £30,000. It was placed in a central position so as to serve all four dumps. The slum was propelled to the treatment plant by subjecting the dumps to a sluicing process. For this purpose the deceased put in pumps which gave water under very high pressure in pipes, the dumps were subjected to a high pressure jet of water from these pipes, and this caused the slum to disintegrate and flow along a main gutter with side gutters to the treatment plant, where the sand and any worthless material was separated by screening, leaving a smooth slimy pulp to subject to the treatment already mentioned.

The burden of proving that an assessment, or an amended assessment, is excessive lies upon the taxpayer: ss. 173 and 190. It is therefore necessary for the appellant to prove, in the language of the objection numbered "2" , which is based upon the definition of contained in s. 6 of the Act, that the profit which the deceased made when he sold his one-fourth share and interest in the dumps to Gold Dumps Pty. Ltd. for 6,000 fully paid shares (and it is not now contested that the value of these shares was £1 each) was not income from personal exertion, because it was a profit arising from the sale by the deceased of a quarter share in property not acquired by him for the purpose of profit-making by sale. Mr. Ham referred to the decision of this Court in Evans v. Deputy Federal Commissioner of Taxation (S.A.)[6] , but the facts in that case were entirely different from the facts in the present case. Applying the principles of construction laid down in the joint judgment of Rich J., Dixon J. and Evatt[7] , I am unable to hold that the dominant purpose actuating the syndicate in acquiring the options over the dumps was to work the dumps itself. The evidence of Mr. Edquist is directly to the contrary. He said that the work which the deceased was doing prior to the sale to Gold Dumps Pty. Ltd. was in the nature of preliminary investigation, that he had a small experimental plant of which he was very proud, that he had often seen him working with his plant, and that he was very keen on experimental work. Of the four members of the syndicate, the deceased appears to have been the only one with any practical knowledge of gold mining and the only one to carry out any experiments on the dumps. The shares of the other three members of the syndicate were first acquired by Clutha Development Ltd. There is no evidence that this company has ever worked a mine. Its name suggests that it is a development company only. When the operations to extract the gold from these dumps (to use a neutral term) were about to commence, the three-fourth share and interest of this company in the dumps was sold for cash to Gold Dumps Pty. Ltd. The latter company was incorporated on the same day as the agreement of purchase was entered into. The appellant has entirely failed to satisfy me affirmatively on the facts with respect to this objection. On the contrary, I am satisfied that the proper inference to be drawn from the facts is that the deceased like the other members of the syndicate acquired his share and interest in these dumps with a view to testing them to ascertain their gold content, and, if the test proved satisfactory, to selling this share and interest at a profit.

The questions that arise on the two remaining objections are (a) whether the sale by the deceased of his share and interest in the dumps was the sale of a right to mine for gold in a particular area within the meaning of s. 23 (p) of the Act; (b) if it was, whether the deceased was a bona fide prospector within the meaning of this sub-section; and (c) (which is largely wrapped with a) whether Gold Dumps Pty. Ltd., which made the calls, was a mining company carrying on mining operations for gold within the meaning of s. 78 (1) (d). Sections 23 and 78 of the Act, so far as material, are in the following terms:—" 23. The following income shall be exempt from income tax:— ... (p) income derived by a bona fide prospector from the sale transfer or assignment by him of his rights to mine for gold in a particular area in Australia or in the Territory of New Guinea. For the purpose of this paragraph, "bona fide prospector" means a person, other than a company, who has personally carried out the whole or major part of the field work of prospecting for gold in the particular area, or who has contributed to the expenditure incurred in the work of prospecting and development in that area, and includes a company which has itself carried out the whole or major part of such work. 78. The following shall ... be allowable deductions:— (1) ... (d) Calls paid by the taxpayer in the year of income on shares owned by him in a mining company or syndicate carrying on mining operations in Australia for gold, silver, base metals, rare minerals or oil, or in any company carrying on afforestation in Australia as its principal business. "

Attention must also be called to s. 23 (o), which exempts "the income derived by a person from the working of a mining property in Australia or in the Territory of New Guinea principally for the purpose of obtaining gold, or gold and copper, provided that in this case the value of the output of gold is not less than forty per centum of the total value of the output of the mine."

The Shorter Oxford English Dictionary, 2nd ed. (1936), and other standard dictionaries describe prospecting as exploring a region for gold and also as working a mine or lode experimentally so as to test its richness. There is a possibility that gold may be found in many localities in Australia, which is the only country with which this appeal is concerned. The prospects of finding gold are of course brighter in some localities than in others. But gold is not worth discovering at all unless it is discovered in payable quantities. It is reasonably certain that disused slum dumps contain fine invisible gold, but it is quite uncertain whether they contain gold which can be recovered in payable quantities, so that in order to ascertain the amount of gold which they contain it is necessary to make the exhaustive preliminary test which Mr. Edquist has described.

Emphasis is laid in s. 23 (p) upon a person who claims the benefit of the sub-section carrying out the whole or a major part of the field work of prospecting for gold in the particular area and upon the contributions which he has made to the expenditure incurred in the work of prospecting and developing the area. The sub-section therefore plainly seeks to encourage qualified persons to go out into the field and to expend their time, energy and money in making the necessary preliminary investigations, and in doing the necessary preliminary development work required to establish the reasonable probability of the presence of gold in a particular area in quantities sufficient to warrant that area being worked as a mine.

The Act, in exempting income from the working of a mining property for the purpose of obtaining gold, and the profits on the sale of rights to mine for gold in a particular area, and in allowing as a deduction calls paid on shares in companies carrying on mining operations for gold, evinces, to my mind, a plain intention to offer a strong incentive to increase the production of gold in Australia. This purpose will only be achieved if the gold is actually won from the earth in which it is contained. In order to effect this purpose, it is just as expedient to encourage persons to carry out the preliminary exploratory tests required to establish the presence of gold in payable quantities in the slum dumps and to encourage companies to establish the necessary expensive plants to recover the gold from such dumps, as it is expedient to induce persons to search for and find gold in payable quantities where it has never been discovered before and to induce companies to establish such plants to work these discoveries.

In each case the preliminary work in the field could be described as prospecting for gold in a particular area, whether that area was a river bed, an old slum dump, or any other likely area. The evidence in the present case proves that the deceased carried out the major part of the field work of testing the four dumps, and that he contributed to the expenditure incurred in the work of prospecting and developing them.

The answers to the questions whether the deceased sold a right to mine for gold in the dumps, and whether Gold Dumps Pty. Ltd. in working the dumps was carrying on mining operations for gold, depend upon the same substantial considerations. Mr. Fullagar contended that the treatment of minerals already won lying on the surface and capable of separate ownership did not constitute mining operations, that the sale of a right to work such minerals and extract gold therefrom was not the sale of a right to mine for gold, and that the work itself was not gold mining. He relied upon the decision of the Court of Appeal in Golden Horse Shoe (New) Ltd. v. Thurgood[8] . In that case the appellant company had purchased dumps similar to the four dumps in the present case with a view to extracting the invisible gold by a new process, presumably similar to the process used by the deceased. The question for determination was whether, in ascertaining the profits for the purpose of the Imperial Income Tax Act 1918, the price paid for the dumps could be taken into account. It was held that, as the tailings were raw material already won and gotten, the amount expended in acquiring them was in the nature of an expenditure on the raw material of the company's trade; and that for the purpose of assessing the company's profits or gains, the cost of the tailings treated during the period of assessment was a proper deduction from the proceeds realized by the sale of the gold extracted. In my opinion the decision has little bearing upon the present appeal, in which the problem is of a different character arising under a different Act. It was not relevant in Golden Horse Shoe (New) Ltd. v. Thurgood[9] to adduce evidence to prove in what generic industrial description the operations of re-treating dumps would fall and no such evidence was given. The expressions "rights ... to mine for gold" and "mining operations ... for gold" used in the Assessment Act are ordinary English expressions, and the determination of their meaning is a question of fact, the duty of the court being to determine what they meant in the vernacular of mining men at the time the Act was passed in 1936. But there is no suggestion that the meaning then was not the same as it is to-day (Federal Commissioner of Taxation v. Broken Hill South Ltd.[10] ). In the Shorter Oxford English Dictionary, 2nd ed. (1936), it is stated that the word "mine" includes, not only the place which yields the minerals, but also the minerals themselves. Mr. Edquist said that in mining parlance the process of extracting the gold from the dumps is called re-treatment, and that re-treatment is one amongst a number of operations which can be described generically as mining operations. He mentioned crushing, sliming, filtering, ground sluicing and bucket dredging as being other instances of mining operations. He said that he was most familiar with lode mining in which the ore is mined underground, brought to the surface, and, after several stages, crushed down until it is fine enough to liberate the gold. He said that portion of the gold is then recovered in metallic form and that any further portion which escaped (presumably he was referring to the tailings) would be either stacked for treatment afterwards if there was not a plant for doing this work, or if there was a plant, it would be run straight into the plant and treated. He said that the whole of this work would be described as mining operations. The only distinction between the operations described by Mr. Edquist and those which took place at Carisbrook was that the re-treatment of the four dumps did not take place until after an interval of thirty years, but the re-treatment was in each case part of the same total process resulting in the complete recovery of the whole of the gold.

I find that the sale of the share and interest of the deceased in the dumps to Gold Dumps Pty. Ltd. was a sale of a right to mine in a particular area, and that the company at the time the calls were made was carrying on mining operations for gold.

The appeal must, therefore, be allowed. The amended assessment of 7th September 1939 must be set aside, so far as it includes the sum of £3,900 received from Gold Dumps Pty. Ltd. The amended assessment of 27th September 1939 must be set aside completely. There must be liberty to apply. The respondent must pay the appellant's costs of the appeal, including any reserved costs.

Appeal dismissed with costs.

Solicitor for the appellant, H. F. E. Whitlam, Crown Solicitor for the Commonwealth.

Solicitors for the respondent, Arthur Phillips & Just.

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1. [1936] HCA 2; (1935) 55 C.L.R. 80.

2. (1935) 55 C.L.R., at p. 99.

3. (1934) 1 K.B. 548.

4. (1934) 1 K.B. 548.

5. [1941] HCA 33; (1941) 65 C.L.R. 150, at pp. 160, 161.

6. [1936] HCA 2; (1935) 55 C.L.R. 80.

7. (1935) 55 C.L.R., at p. 99.

8. (1934) 1 K.B. 548.

9. (1934) 1 K.B. 548.

10. [1941] HCA 33; (1941) 65 C.L.R. 150, at pp. 160, 161.