COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Davies J.(1)

CWDS
  Income Tax - deductibility of expenditure - expenses of an application to
the Australian Broadcasting Tribunal for a supplementary FM radio licence -
whether expenditure of a capital nature - whether expenditure went to the
heart and nature of the business enterprise - significance of applicant's
obligations under the Broadcasting Act.

HRNG
SYDNEY
#DATE 13:6:1991
  Counsel for the applicant:              Mr T.P. Murphy
  Solicitors for the applicant:           Corrs
  Counsel for the respondent:             Mr G. Nettle
  Solicitor for the respondent:           Australian Government Solicitor

ORDER
  The appeal be dismissed.
  The applicant pay the respondent's costs of the application.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal
Court Rules.

JUDGE1
  This is an appeal from a decision of the Administrative Appeals Tribunal
("the Tribunal"), constituted by Senior Member R.A. Balmford, in which the
Tribunal upheld a decision of the Commissioner that certain expenditure
incurred by Sunraysia Broadcasters Pty Ltd ("Sunraysia") in the year ended 30
June 1986 was expenditure of a capital nature.  The amount claimed, $339,934,
constituted the expenses of an application made by Sunraysia to the Australian
Broadcasting Tribunal.
2.  Analogous issues have been considered by the High Court of Australia in
several cases including Sun Newspapers Limited v Federal Commissioner of
Taxation (1938) 61 CLR 337, Hallstroms Pty Limited v Federal Commissioner of
Taxation (1946) 72 CLR 634, Broken Hill Theatres Pty Limited v Federal
Commissioner of Taxation (1951-1952) 85 CLR 423 and Federal Commissioner of
Taxation v Snowden and Willson Proprietary Limited (1958) 99 CLR 431.
3.  The Tribunal thought that the expenditure was expenditure on capital
account.  I agree with the Tribunal, and, as I think that the present is a
clear case, I need state my reasons only briefly.
4.  The crux of the distinction between capital and revenue was set out in the
classic statement by Dixon J. in Sun Newspapers Limited v Federal Commissioner
of Taxation, where his Honour said at p 359:-
      "The distinction between expenditure and outgoings on revenue
      account and on capital account corresponds with the distinction
      between the business entity, structure, or organization set up or
      established for the earning of profit and the process by which
      such an organization operates to obtain regular returns by means
      of regular outlay, the difference between the outlay and returns
      representing profit or loss."
5.  Sunraysia was the licensee of a commercial radio station, 3MA, which
operated in the AM band.  It gained its licence in 1933 and, subject to there
being some areas which overlapped with other licensees, it effectively had a
monopoly on radio broadcasting in the Mildura area. This enabled Sunraysia to
provide what it called a "horizontal range of programmes, intended to provide
something for everybody, including material of specifically local interest."
It was the policy of Sunraysia to provide such a horizontal range of
programmes, which it regarded as the most desirable form of broadcasting, best
serving the needs of the community.
6.  However, in 1982, the Broadcasting Act 1942 (Cth) was amended to provide
for the grant of supplementary FM radio licences to persons who already held
commercial AM radio licences.  The intent of the Act was to introduce choice
in country areas.  The amending legislation, which was contained in the
Broadcasting and Television Amendment Act 1982 (Cth), was passed on 31
December 1982.  Pursuant to that legislation, Sunraysia lodged an application
for a supplementary licence and the relevant expenses were incurred in
pursuing that application, which is still unresolved.
7.  For present purposes, a major point is that Sunraysia did not regard the
acquisition of a new FM licence as "an asset or an advantage for the enduring
benefit of a trade", to use the expression of Viscount Cave L.C. in British
Insulated and Helsby Cables, Limited v Atherton (1926) AC 205 at 213.
Sunraysia regarded an FM licence as a detriment which, if a competitor gained
it, would interfere with its horizontal range of programming and which, if
Sunraysia gained it, would be likely to cost it money, at least in the first
few years.
8.  The Tribunal recorded the following facts, inter alia:-
    "The expectation of the applicant, as expressed at the hearing of
    this matter, was that if an independent commercial FM station was
    established in the area, and the applicant attempted to continue to
    provide its existing services, i.e.  to provide an adequate and
    comprehensive service as required by the Broadcasting Act, the
    applicant would be forced into bankruptcy.  It would be compelled,
    in order to survive, to abandon talk programmes, and such services
    as football coverage.  It would probably have extensive music
    programmes on relay, with `windows' for local advertisements, rather
    than its present coverage of different local interests.  Those
    controlling the applicant did not wish to be forced into operating
    in this way:  they wished to continue to provide a general local
    service.  Even if the applicant were successful in obtaining a
    supplementary FM licence itself, it was not certain that it would
    break even.  There would certainly be losses in the initial years."
    (the emphasis is mine.)
9.  Those passages are sufficient to show that Sunraysia made its application
not because it regarded the FM licence as a valuable and enduring benefit, but
because it thought that, if a competitor gained the FM licence, the whole
structure of its business earning enterprise would change, horizontal
programming would become impractical, and Sunraysia may be  forced into
bankruptcy.  The Tribunal's forceful words on this subject were well supported
by the evidence before it and are not the subject of challenge in this appeal.
10.  This was a clear case where the expenditure went to the heart and nature
of the business enterprise.  I would accept that, in Sunraysia's view, the
expenditure was designed to protect the business enterprise rather than to
gain an additional benefit.  But Sunraysia considered that the business
enterprise as it had been carried on since 1933 was at risk.  Its expenditure
was therefore capital expenditure, as explained by Dixon J. in Sun Newspapers
and as was illustrated by the decision in that case and by Broken Hill
Theatres Pty Ltd v Federal Commissioner of Taxation, cited above.  The
expenditure was not such as might be expected from year to year in the
carrying on and maintenance of the business enterprise.  In its crucial
finding, the Tribunal referred to the words of Dixon J. in Sun Newspapers at
364:-
     "... in principle the transaction must be regarded as strengthening
     and preserving the business organisation or entity, the
     profit-yielding subject, and affecting the capital structure."
The facts fully support the Tribunal's application of this principle. As Dixon
C.J., McTiernan, Fullagar and Kitto JJ. said in Broken Hill Theatres at p
434:-
    "The advantage of being free from Boulus's competition and of all
    other competition for twelve months is just the very kind of thing
    which has been held in many cases to give to moneys expended in
    obtaining it the character of capital outlay."
In Snowden and Willson, where the expenditure was held to be of a revenue
nature, Dixon C.J. emphasised at 437:-
    "An examination of the facts does not support the view that the
    proceedings in Parliament and before the Royal Commission imperilled
    the existence of the business or the capital assets of the company."
The contrary was fact in the present case.
11.  In this appeal, counsel for Sunraysia relied not only upon the fact that
the FM licence was not regarded as an asset but also because Sunraysia thought
that the grant of an FM licence to a competitor would preclude it, Sunraysia,
from complying with its undertaking to "provide an adequate and comprehensive
service pursuant to the licence."  I regard this last matter as of little
significance.  I am sure that the Australian Broadcasting Tribunal would have
looked at the totality of the programmes provided by the AM and FM licensees
and would not have considered each licensee bound to provide a horizontal
range of programmes providing "something for everybody" and satisfying all in
the community.
12.  For these reasons, I shall dismiss the appeal with costs.