G Gramp & Sons Ltd v Federal Commissioner of Taxation [1965] HCA 53; (1965) 115 CLR 170 (3 November 1965)

HIGH COURT OF AUSTRALIA

G. GRAMP & SONS LTD. v. FEDERAL COMMISSIONER OF TAXATION [1965] HCA 53; (1965) 115 CLR 170

Income Tax (Cth)

High Court of Australia
Windeyer J.(1)

CATCHWORDS

Income Tax (Cth) - Deductions - Special depreciation allowance to primary producers - "Agricultural pursuits" - Winery - Winery on part of area of land owned by taxpayer remainder of &which used for grape-growing - Income Tax and Social Services Contribution Assessment Act 1936-1960 (Cth), ss. 54, 57AA.

HEARING

Adelaide, 1965, October 4, 5;
Sydney, 1965, November 3. 3:11:1965
APPEAL under the Income Tax and Social Services Contribution Assessment Act 1936-1960 (Cth).

DECISION

November 3.
The following written judgment was delivered:-
WINDEYER J. This is an appeal by the taxpayer company from a decision of a lodged by the taxpayer in respect of the years of income ended 31st December 1958 and 31st December 1959. The material facts are not in dispute. The only question is whether they are such as to bring the case within the provision, properly construed, of s. 57AA of the Income Tax and Social Services Contribution Assessment Act. The Board decided that they are not. Its decision involved a question of law and is thus subject to appeal to this Court pursuant to s. 196 of the Act. (at p172)

2. The evidence before me is a transcript of the evidence given before the Board, supplemented by some oral evidence from two directors of the company, Mr. C. R. Gramp and Mr. R. A. Gramp, and by some plans and photographs. (at p172)

3. The taxpayer company carries on an extensive business in making wines, and also some spirits, at Rowland Flat in the Barossa Valley, South Australia. Its products, among them those called Orlando and Barossa Pearl wines, are well known and very large quantities are produced and sold. Its winery is a group of substantially-built factory buildings covering some nine acres. In this factory all the processes of making wine, distilling, and bottling are carried on. The grapes used are for the most part supplied by independent growers in the Barossa Valley. The company has some vineyards of its own, but only a small part of the grapes used in the winery are of its own growing. (at p173)

4. One of the company's properties is an area of land of about seven hundred and fifty acres at Rowland Flat. This land is held under several certificates of title and has not always been in the one ownership. It is intersected by a public road. But, being all now owned and occupied by the company, and its various parts being, except for the road, contiguous and in the one neighbourhood, it was said that it should be considered as a unity. This way of looking at the property was adopted in the argument for the company, because the nine acres on which the winery stands are a part of this seven hundred and fifty acres if that area be regarded as a whole. The rest of the area, that is all of it beyond the part where the winery is, is used, and at relevant times was used, for agricultural purposes, mainly as a vineyard. About eight per cent of the grapes used in the winery come from this vineyard. (at p173)

5. During the years in question the company made certain structural additions and alterations to the winery. These included: additions to the cooper's shop where casks are made and repaired and to the refrigeration building, the addition of a floor on the bottling building, additions to one of the wine-cellars and a new boardroom in the office block. The total cost of these works was 8,364 pounds in 1958, 14,396 pounds in 1959, 5,384 pounds in the year 1960. The company's argument is that these works should be regarded as "structural improvements situated on land used during the year of income for the purposes of agricultural or pastoral pursuit" within the meaning of s. 57AA. It therefore claims to be allowed a deduction of twenty per cent per annum of the cost in each case. (at p173)

6. Section 57AA appears to be designed to give primary producers the benefit of a special depreciation rate in respect of structural improvements made for the development and better working of their properties. It is tied to s. 54 and applies only to "units of property" which are depreciable items under that section. The first question is therefore whether the expenditure here in dispute was the cost of things to which that section applies. It applies to "property being plant or articles owned by a taxpayer and used by him during the year for the purpose of producing assessable income". And "plant", for present purposes, includes "fences, dams and other structural improvements on land which is used for the purposes of agricultural or pastoral pursuits . . . other than structural improvements used for domestic or residential purposes except where the improvements are provided for the accommodation of employees, tenants or sharefarmers engaged in or in connexion with those pursuits . . .". These provisions reveal the policy of the enactment and define its scope. Fences, dams and other structural improvements upon agricultural and pastoral land are regarded as plant because they are means by which the land is used for the production of assessable income by agricultural and pastoral pursuits. (at p174)

7. The first argument advanced for the company was that wine-making is itself an agricultural pursuit. In an endeavour to support this proposition evidence was given that the company's now large enterprise had small beginnings. The business now carried on by G. Gramp & Sons Limited has a kind of historical continuity with the undertaking by one Gustav Gramp, who in the first half of last century planted grapes and made wine on land not far from the company's present holding. More than ninety years ago he and members of his family were cultivating grapes and by primitive processes of domestic manufacture making wine upon what is now the site of the winery. It is said that at that time their wine-making could have been fairly described as a part of the agricultural pursuit in which they were engaged. But an historical continuity of the business and a change in its character can concur. The question for me relates to the present, not the past. Making wine is a distinct industry in Australia. It is not now, if perhaps one it was, ordinarily an incidental part of viticulture. In the Income Tax Assessment Act itself there is a reference to "the business of wine-making". Latham C.J., speaking of a somewhat similar question concerning the making of butter, once said: "Today the making of butter has become a factory process, separated from the farm": The Producers' Co-operative Distributing Society Ltd. v. Commissioner of Taxation (N.S.W.) [1944] HCA 39; (1944) 69 CLR 523, at p 530 : and the Privy Council said in the same case on appeal: "There are two industries, the farming industry and the butter-making industry. The industries are indeed closely related, but they are independent and the product of the latter industry is not in any real sense the product of the former industry" [1947] UKPCHCA 2; (1947) 75 CLR 134, at p 139 . The judgments in that case are to some extent illustrative, and both sides referred me to them. But, of course, this case depends upon the application of the statutory provisions in question to its facts, not upon the bearing of another statute upon different facts. Even if it be correct to say - and I am not persuaded that it is - that at some time the wine-making activities of the Gramp family were merely incidental to their agricultural pursuits, it matters not I think that it may be impossible to say at what stage of the development of their activities wine-making became for them a separate industrial undertaking. The ancient sophism of the sorites does not advance the argument. It is in my opinion impossible to say that in carrying on its business of wine-making the company was in the years in question engaged in an agricultural pursuit so as to make the very land on which the winery stands land used for the purpose of an agricultural pursuit. (at p175)

8. The next argument looked to a larger area. It depended on the proposition that the winery is situated on the company's seven hundred and fifty acres of land at Rowland Flat. It is on a part of that land; and if one looks at that land as a unit, then it is situate on that land. But the question on which the case depends lies not in first identifying and delimiting an area of land on which the winery is situate and then asking was that area of land used for the purposes of agricultural pursuits. The question is, were the additions to the winery structural improvements situated on land used for agricultural pursuits. Fences, dams, a hayshed, a woolshed, sheepyards, cowbails and suchlike on a farm or a pastoral property all answer the statutory description. That is because they are structures that improve the land on which they are situated for the purposes of the agricultural or pastoral pursuits carried on there. They enable that land to be better used for such pursuits. That is the quality that determines the genus to which the structural improvements must belong if they are to come within s. 54 (2) (b). The land on which they actually stand, that is the part of the soil that is beneath them, then remains, in the relevant sense, a part of a larger whole used for agricultural or pastoral pursuits. The contrast is with the case in which the land on which the structure actually stands and its immediate curtilage become, by reason of being devoted to a different use, withdrawn from the area used for the purposes of agricultural or pastoral pursuits. Little is to be gained, however, by seeking to elaborate in words a distinction that is clear enough in fact, or by using other words to express the idea that is made sufficiently plain by the words of the Act. (at p175)

9. I was referred to statements in judgments in a number of cases arising under a variety of statutes. Some of them had only a remote bearing upon the question here. But there is a passage that is directly relevant in the decision of Kitto J. in Willeroo & Manbulloo Ltd. v. Federal Commissioner of Taxation [1964] HCA 51; (1964) 111 CLR 336, at p 342 , where his Honour said: "It seems to me that the whole of Helen Springs station was used for the purposes of pastoral pursuits, no less after than before the erection of the road train base. The erection of the base did not carve out a part of the station property and apply it to purposes different from the overall purposes of the property. The maintenance of the base on the property thereafter was, in my opinion, merely a part of the means by which the appellant continued to use the whole property for pastoral pursuits". Everything that his Honour thus said about the road train base there in question is inapplicable to the winery here in question. Judged by the tests that his Honour there applied, and which I respectfully think are proper tests, the additions to the winery must be found wanting the characteristics needed to bring them within s. 57AA. They were erected upon a part of the seven hundred and fifty acres separated from the rest because applied to the purposes of the winery. (at p176)

10. The appellant's counsel virtually conceded that if a viticulturist were to put up, say a moving-picture theatre or a petrol station upon his land, it would not be a structural improvement to which s. 57AA could apply. His argument thus depended upon the relationship between wine-making and grape-growing. But that is not enough. They are related industries but separate industries. (at p176)

11. The decision of the Board of Review to disallow the taxpayer's objection as to the items now in question was correct. The Board's decision on an objection to another item in the amended assessment (issued in 1963 in respect of the year ended 31st December 1959) was in favour of the taxpayer and is not challenged. I therefore dismiss the appeal and confirm the assessments in question, the amended assessment in respect of the year ended 31st December 1959 being confirmed as further amended pursuant to the decision of the Board of Review. The taxpayer company must pay the costs of the appeal. (at p176)

ORDER

Appeal dismissed with costs. Assessments (that in respect of year ended 31st December 1959 as amended pursuant to the decision of the Board of Review) confirmed.