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1947 Supreme(SC) 69
Privy Council At Australia
Macdermott, Normand, Uthwatt, Simonds, Justice Lord Porter, JJ.
Producers Co - operative Distributing Society Ltd. -Appellant
Versus
Commissioner of Taxation -Resopndent
Privy Council Appeal No. 57 of 1946
Decided On : 18-12-1947
Fulton, Light, Vandyk, Herbert Oppenheimer Nathan, C.A. Weston, Desmons Ackner, Terence Donovan, Sir Valentine Holmes
The judgment established that the interpretation of 'agricultural products' for the purpose of income tax exemption should consider the treatment and circumstances of production, and not solely the origin of the raw material.
Headnote:
Income Tax - Rural Society - S. 19, Income Tax Management Act, 1941 - Exemption from Income Tax - Agricultural Products - Co-operative Act, 1923-1941
Fact of the Case:
The Producers Co-operative Distributing Society appealed for exemption from income tax under S. 19 (o), Income Tax Management Act, 1941, of New South Wales, which was disallowed by the Board of Appeal. The appellant's principal business involved selling butter made by Co-operative Societies from cream sold by farmers.
Finding of the Court:
The court found that the relevant butter, made by manufacturing societies and sold for their account, was not considered an agricultural product of its members, and therefore, the claim for exemption was not upheld.
Issues: The key issue was whether the butter made by the manufacturing societies and sold for their account qualified as an agricultural product of its members, thus entitling the appellant to exemption from income tax.
Ratio Decidendi: The court held that the relevant butter, being a product of factory operations made out of cream bought from many sources, was not considered a product of the use of the factory land. Additionally, the court emphasized that the treatment of an agricultural product may result in an article that is not considered an agricultural product within the definition.
Final Decision: The appeal was dismissed, and the appellant was ordered to pay the costs of the appeal.
Lord Uthwatt.-
This is an appeal by special leave by The Producers Co operative Distributing Society, Ltd., from a judgment of the High Court of - Australia dated 11 - 12 - 1944, affirming a judgment of the Full Court of the Supreme Court of New South Wales dated 4 - 10 - 1944. That judgment upheld a decision dated 10 - 5 - 1944, of the Board of Appeal constituted by the New South Wales Income tax Management Act, 1941, which disallowed the appellant's claim to exemption from income - tax under S. 19 (o), Income - tax Management Act, 1941, of New South Wales. The point raised has a considerable practical importance. It is also one of some difficulty as appears from the fact that Jordan C. J., in the Full Court and Rich and Starke JJ. in the High Court expressed dissenting opinions.
2. The appellant is a rural society registered as such under the Co - operation Act, 1923 - 1941, of the State of New South Wales. Its members are some 9500 in number. Most of the members are individual farmers but nearly 100 Co - operative Societies registered under the Act are also members. The business of the appellant consists in the sale on commission of butter, bacon and other like commodities. Its principal business consists in selling on behalf of those of its members which are Co - operative Societies butter made by those societies from cream sold to them by farmers.
3. This completes the tale of the facts save for one important matter. There was uncontradicted evidence that butter making exists as a distinct industry in the State. In the early days it was the practice of farmers to make their own butter. Proprietary Companies then came upon the scene and started building creameries in the various milk producing centres. The farmer's dairying practice changed and he contented himself with separating his cream and sending it to the creamery. With the growth of the co - operative movement butter factories were built all over the State, the proprietary companies being pushed aside by the Co - operative Societies. The effect of the evidence is pointedly and accurately summed up by Latham C. J. in the statement that "it shows that to - day the making of butter has become a factory process, separated from the farm."
4. The provision containing the exemption from income - tax on which the appellant relies is S. 19, Income - tax Act, 1941, of New South Wales and it so far as relevant runs as follows ;
"The following income shall be exempt from Income - tax :-
(O) the income.....of a rural society registered as such under the Co - operation Act, 1941, if the principal business of that rural society is the manufacture treatment or disposal of the agricultural products (as defined in that Act) or livestock of its members."
5. The incorporated definition contained in the Co - operation Act, 1923 - 1941, is in the following terms:
"Unless, the context or subject matter otherwise - indicates or requires-"Agricultural products" means "products of any rural industry." "Rural industry" means "the cultivation or use of land for any agricultural pastoral dairying or rural purpose."
Agricultural products means therefore the products of the cultivation or use of land for any agricultural pastoral dairying or rural purpose.
6. The question which emerges for decision is whether the butter made by the manufacturing societies and sold for their account-it may be conveniently called the relevant butter-is vis - a - vis the appellant Society "an agricultural product of its members." If it is, then, inasmuch as the principal business of the appellant, which is clearly a rural society, consists of the disposal of the relevant butter, the claim for exemption is made out. The appellant's submissions are that the relevant butter is a product of the use of the farmer's land for a dairying purpose, or alternatively a product of the use of the factory land for that purpose, and therefore an agricultural product. In connexion with its first submission the appellant contends that the phr
