BP Australia Ltd. v Federal Commissioner of Taxation [1964] HCA 81

High Court of Australia Taylor J. Dixon C.J. McTiernan, Kitto, Windeyer and Owen JJ. BP Australia Ltd. v Federal Commissioner of Taxation

ORDER Appeal dismissed with costs.

Cur. adv. vult.

1961, May 8 Taylor J . delivered the following written judgment:—

This appeal is brought by the company pursuant to s. 187 (b) of the Income Tax and Social Services Contribution Assessment Act 1936-1952 Cth against its assessment to income tax for the income year which ended on 30th June 1952. It is unnecessary for the purposes of the case to refer to the notice of assessment or to the various amended assessments which were issued, beyond saying that ultimately, by the disallowance of certain deductions which had been claimed, the taxable income of the appellant was increased by the sum of £271,240 and that the question in this appeal is whether the whole or some part of that sum should have been allowed as a deduction. There is no question that sums of which the amount in question is the aggregate were expended by the appellant during the relevant year; the substantial question, as will appear, is whether the deductions claimed were rightly disallowed on the ground that the expenditure was of a capital nature.

The appellant is a company engaged in the business of selling and distributing motor spirit and before proceeding to a consideration of the nature of the constituent parts of the amount in question it is of some importance to discuss the manner in which that commodity has, from time to time, been marketed through service stations in Australia and to refer to events in August 1951 which produced a marked change in the manner of distribution to resellers and, ultimately, to the public. The business of the appellant company is not, of course, confined to selling motor spirit to service station operators. In common with other companies carrying on like businesses it has always sold large quantities of its products to industrial users and other consumers but its sales to service station operators have always represented a substantial part of its activities. For a number of years until the latter part of 1951, these sales were made to operators who conducted what were referred to in evidence as "multi-pump stations". That is to say, these operators conducted service stations at which the pumps and tanks of competing oil companies were installed and their products were bought and then resold in competition with one another. There was a relatively small number of sites where only the pumps and tanks of one company were installed but this was unusual and accidental in the sense that the volume of business at any particular site was the factor which determined whether only one, a few or a considerable number of pumps could be economically employed. As a rule the pumps and tanks remained at all times the property of the oil company concerned and they were subject to the right of the operator to require them to be removed upon one month's notice. In practice, however, the tanks were never removed for there was in existence a trade convention by which a company which had received notice of removal would make its existing tanks on the particular site available to its successor. It will be seen, therefore, that the distribution and marketing of motor spirit through these reselling outlets was for many years (omitting the war years) freely competitive and the evidence shows that in August 1951 the appellant had its pumps installed on some 3,940 "multi-pump" sites throughout the Commonwealth. But in that month there occurred an event which transformed the picture of this section of the trade. On 14th August 1951, one of the companies engaged in the trade, namely The Shell Company of Australia Limited, announced that it had "decided to introduce a Dealer Plan with the object of confining its trade to stations which are prepared to become solo outlets, on similar lines to the plan existing in the U.S.A. and which was recently introduced in the U.K.". Its adoption of this plan was announced to the other companies engaged in the trade by a circular letter by which the Shell Company also expressed its regret that it had not been possible to discuss the plan in advance since it could not risk giving its competitors unlimited time in which to frustrate the plan. As one may assume from the terms of the circular the Shell Company had already approached a considerable number of dealers for the purpose of obtaining their co-operation and, apparently, that company had been successful in its approaches. Subsequent events showed that at the time when the circular letter was dispatched many operators had entered into arrangements with the Shell Company to sell only its products at their respective service stations. The immediate result was that during the residue of the month of August 1951 the appellant company received pump removal notices from 437 operators and by the end of December of the same year this number had increased to 1,012. The reference in the Shell Company's letter to events in the U.S.A. and the U.K. may furnish some ground for thinking that the adoption in Australia at some time or other of "solo" marketing plans was inevitable. But its introduction at this particular time seems to have been a matter for surprise.