Commissioner of Taxation (Cth) v Utah Development Co

High Court of Australia BARWICK CJ Gibbs and Stephen JJ Commissioner of Taxation (Cth) v Utah Development Co

ORDER Order Appeal dismissed with costs. Barwick CJ

The Supreme Court of Victoria constituted by Newton J heard and allowed two appeals by the respondent taxpayer. The Commissioner has appealed to this Court seeking the dismissal of the taxpayer's appeals against the disallowance of its objection to assessments. Those assessments disallowed claims by the taxpayer for a deduction in each of 2 years covered by the assessments for expenditure of a capital nature on new manufacturing plant for use by it in Australia for the purpose of producing assessable income under the provisions of s 62AA of the Income Tax Assessment Act 1936-1972.

The taxpayer's claim was that the plants which are sited on or adjacent to coal mines operated by it are used by it primarily, principally and directly as part of the operations by which manufactured goods are derived from other goods. The taxpayer claimed that by a process of manufacture it derived coking coal from the coal which it had won by mining.

The Commissioner disallowed those claims for the reason that the product of the plant was not manufactured goods or for the reason that the operations in which that product was produced were mining operations and so outside s 62AA by reason of s 62AA(3).

The learned judge who heard the taxpayer's appeals at first instance described the plant that the the taxpayer used in some detail in his reasons for judgment, when he said ( (1975) 5 ATR 334 at 337-40): "Essentially what each of the preparation plants does is to break up the run of mine coal into small pieces so as to separate to a considerable extent the different entities of which the coal is composed, although it is impossible to do this 100% completely, and the plant then concentrates as a new coal entities taken from the run of mine coal, which in combination will constitute a metallurgical coking coal, possessing the requisite qualities. Thus the entities of the new coal produce or constitute a coal which has, for example, a reduced ash and sulphur content as compared with the run of mine coal, and a greater strength, the strength depending on a proper combination in the new coal of reactive entities and inert entities. The residue of the run of mine coal are rejected, or at all events placed to one side as a separate coal or coals; these residues have some heating value, and could be used for power generation, as Mr Bateman explained in his evidence, although so far they have not been so used; however, negotiations for their use in this way have been and are taking place. At Blackwater the metallurgical coking coal produced by the preparation plant is equal to about 65% of the run of mine coal on an air dried weight basis, and at Goonyella and Peak Downs the proportion is about 75%. I should say that I have taken my description of the essential functions of the preparation plants principally from Mr Cudmore's evidence.