J McCarthy & Co Pty Ltd v Federal Commissioner of Taxation [1953] HCA 71; (1953) 88 CLR 347 (9 November 1953)

HIGH COURT OF AUSTRALIA

J. McCARTHY & CO. PTY. LTD. v. FEDERAL COMMISSIONER OF TAXATION [1953] HCA 71; (1953) 88 CLR 347

Income Tax (Cth.)

High Court of Australia
Taylor J.(1)

CATCHWORDS

Income Tax (Cth.) - Assessable income - Deduction - Amenities for employees - Building therefor - Construction - Fittings and equipment contained in building - Cost - Depreciation - "Plant" - Income Tax Assessment Act 1936-1948 (No. 27 of 1936 - No. 44 of 1948), ss. 54, 55.

HEARING

Sydney, 1953, November 2, 9. 9:11:1953
APPEAL.

DECISION

November 9.
The following written judgment was delivered by:-
TAYLOR J. The taxpayer, which is a company carrying on business at of the Department of Labour and Industry of the State of New South Wales to provide certain facilities or "amenities" for its employees. It was not possible to provide these facilities in the company's existing premises and, accordingly, it caused a new building to be erected on its land, the construction of which was completed prior to May, 1946. The building contains a men's and women's dining-room, rooms with locker accommodation for male and female employees and washing and changing rooms. (at p348)

2. In its returns of income for the income years ended 30th June 1946, 30th June 1947, and 30th June 1948, respectively, the company claimed as deductions from its assessable income depreciation calculated on the cost of the construction of this building and the provision of the fittings and equipment therein contained. The deductions claimed in relation to the income of the years referred to was respectively 1,115 pounds, 1,272 pounds and 1,287 pounds. Deductions of these amounts were, however, not allowed but after some correspondence between the parties deductions in relation to the income of these years were allowed to the extent of 272 pounds, 541 pounds and 448 pounds respectively. These amounts represented the appropriate deductions for depreciation in respect of various items contained in the building such as furniture, lockers, plumbing, toilet equipment and internal partitions, all of which the commissioner was prepared to treat as plant for the purposes of the relevant provisions of the appropriate Acts. But the company claims that the commissioner should also have allowed deductions in respect of the cost of erecting the building itself. The differences between the amounts claimed in each year as a deduction and the amounts which were allowed are it is agreed, the appropriate additional amounts which should be allowed in each year if the company's contentions are correct. (at p348)

3. The claim of the company in respect of the income year ended 30th June 1946, depends upon the true meaning and effect of ss. 54 and 55 of the Income Tax Assessment Act 1936-1946 and in respect of the later years, ss. 54 and 55 of that Act as amended in 1947. No material amendments were, however, made in the last-mentioned year. Sub-section (1) of s. 54 provides: "Depreciation during the year of income of any property, being plant, or articles owned by a taxpayer and used by him during that year for the purpose of producing assessable income, and of any property being plant or articles owned by the taxpayer which has been installed ready for use for that purpose and is during that year held in reserve by him shall, subject to this Act, be an allowable deduction". (at p349)

4. The meaning of the expression "plant" as used in this provision is subject to the provisions of sub-s. (2) which provides, inter alia, that: "(2) In this section, 'plant' includes - (c) plumbing fixtures and fittings, including wall and floor tiling, in premises acquired after the thirtieth day of June, One thousand nine hundred and thirty-eight, or installed in premises after that date, by a person carrying on a business for the purpose of producing assessable income, where those fixtures and fittings are provided principally for the use, for personal purposes, of persons employed by him in that business". (at p349)

5. Counsel for the company virtually conceded, and I think rightly so, that if these provisions stood alone the claim of the company could not be maintained. But he called in aid the provisions of sub-s. (2) of s. 55 which, he contended, require the conclusion that a building specially erected for the "provision of amenities" - as occurred in this case - should, for the purposes of s. 54, be regarded as "plant". With this contention I disagree. The right to deduct depreciation in respect of property which consists of "plant or articles" owned by a taxpayer and used by him during the year of income for the purpose of producing assessable income or which has been installed ready for use for that purpose is given by sub-s. (1) of s. 54 and, admittedly, it is on this provision that the company's claim must depend. Neither sub-section of s. 55 gives a right to deduct amounts for depreciation; their purpose is to prescribe the basis upon which, or the rate by reference to which, the amount of the deduction permitted by s. 54 is to be ascertained. That this is so is evident from the express terms of s. 55: "(1) In the first calculation of the depreciation to be allowed in respect of any unit of property, an estimate shall be made by the Commissioner of the effective life of the unit assuming that it is maintained in reasonably good order and condition, and the annual depreciation per centum shall be fixed accordingly. (2) Notwithstanding anything contained in the last preceding sub-section, the annual depreciation per centum of any unit of property used by a taxpayer principally for the purpose of providing clothing cupboards, first aid, rest-room or recreational facilities, or meals or facilities for meals, for persons employed by him in a business carried on by him for the purpose of producing assessable income shall be thirty-three and one-third per centum". (at p349)

6. That sub-s. (1) was intended to prescribe such a basis is clear from its express words whilst it is equally clear from the opening words of sub-s. (2) that this sub-section is intended as a qualification on the first sub-section, and that were it not for sub-s. (2) it would be necessary for depreciation in cases such as the present to be calculated in accordance with the basis prescribed by the earlier sub-section. But, whilst conceding this to be so, counsel for the company emphasized that the definition of "plant" in s. 54 was by no means exhaustive and contended that it was sufficiently apparent from sub-s. (2) of s. 55 that it was the intention of the legislature to treat as plant any "unit of property used by a taxpayer principally for the purpose of providing clothing cupboards, first aid, rest-room or recreational facilities, or meals or facilities for meals, for persons employed by him in a business carried on by him for the purpose of producing assessable income". The building specially provided for the purpose above referred to was, it was said, a unit of property used principally for such or some of such purposes and accordingly, it was argued, ought properly to be regarded as plant within the meaning of s. 54. (at p350)

7. There are, I think, several difficulties in the way of accepting this contention, but it is, I think, unnecessary to refer to all of them in order to dispose of this appeal. A structure of the kind in question does not in ordinary parlance constitute "plant" and it should not, I think, be so regarded unless upon a consideration of sub-s. (2) of s. 55, it is reasonably clear that such a result was intended. The argument that such a result was intended depends in the first place, of course, upon whether the expression "unit of property" appearing in sub-s. (2) includes a reference to such a structure. It is at this point that the company meets its initial difficulty for clearly, I should think, the expression does not mean property of any kind, but property which is "plant" or an "article" within the meaning of s. 54, and in respect of which depreciation is property deductible thereunder. It is not as if sub-s. (2) of s. 55 adopts the expression "property" for its own special and independent purposes; it is used in s. 54 (1) and again in sub-s. (1) of s. 55 in a restricted sense and, in my opinion, it must be taken to be used in the same sense in sub-s. (2) of the latter section. It would be reversing the normal process of interpretation to give to the expression "property" in that sub-section the widest meaning and thereby to introduce into s. 54 a further and quite artificial extension of the meaning of "plant". (at p350)

8. The validity of the conclusion to which I have come does not, however, rest only upon this general approach to the problem for there are positive and particular reasons for rejecting the company's contention. Sub-section (2) (c) of s. 54 and sub-s. (2) of s. 55 were introduced into the Act at the same time by Act No. 6 of 1946. The former sub-section made it clear that the expression "plant" should include "plumbing fixtures and fittings, including wall and floor tiling . . . installed in premises by a person carrying on business for the purpose of producing assessable income where those fixtures and fittings are provided generally for the use, for personal purposes, of persons employed by him in that business". Pursuant to this provision depreciation in respect of facilities in washrooms, locker and dining-rooms and such like facilities became properly deductible subject to the condition prescribed by sub-s. (1) of s. 54 that they are used "for the purpose of producing assessable income" or installed ready for use for that purpose. No question arises on this appeal whether the "amenities" provided by the company were used for the purpose of producing assessable income, for the commissioner conceded that this condition, as it must be understood in s. 54, is, in the case of amenities of the type under consideration, satisfied by their normal use. But in adding to the definition of "plant" by enacting sub-s. (2) (c) of s. 54 the legislature made a clear distinction between fixtures and fittings of the nature specified and the premises in which they might be installed. The former clearly fall within the definition of "plant" whilst the latter do not. This being so, it would, I think, be quite wrong to attribute to the word "plant" in s. 54, as a result of the language employed in sub-s. (2) of s. 55, a meaning wide enough to include the premises in which the fixtures and fittings under consideration in this case have been installed. The terms of sub-s. (2) of s. 55 are, in my opinion, by no means appropriate to lead to such a result and particularly so where, at the time of its enactment, the attention of the legislature was directed to the question of what additional "property" should be regarded as plant for the purposes of s. 54 and its intention expressly declared and such a distinction as that already referred to made. (at p351)

9. Counsel for the respondent emphasized the circumstance that the building under consideration in this case had been specially constructed for the provision of amenities and contended that to this extent the case was special and capable of distinction from cases where fixtures and fittings have been installed in existing premises. I must confess, however, to being unable to see any distinction in principle between cases such as the present and cases where existing buildings are made available for the provision of amenities. (at p351)

10. In the circumstances and for the reasons which I have given I am of the opinion that the appeal should be dismissed. (at p352)

ORDER

Appeal dismissed with costs.