1960 PLP 954 (PTD)

The provision containing the exemption from income‑tax on which the appellant relies is section 19 of The 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‑operative 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." 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. 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 alterna tively a product of the use of the factory land for that purpose, anti therefore an agricultural product. In connection with its first. submission the appellant contends that the phrase "products of its members" does not connote production by its members. It is convenient to deal first with the alternative submission of the appellant. In their Lordships' view it is inaccurate to describe butter resulting from factory operations made out of cream bought from many sources, as a product of the use of the factory land. The use of the factory land necessarily entered into the operation of making the relevant butter‑the use of land enters into most forms of human activity‑but to attribute the product to the use of the factory land rather than to the raw materials and the operations to which those materials are subjected is to neglect the substance of the matter, and to seize upon a feature common to all factory operations as the feature marking out the origin of the product of a particular factory operation. The first‑ contention of the appellant cannot be disposed of so easily. In connexion with it the appellants sought to draw from a detailed examination of the substantive provisions of The Co operation Act an inference as to the meaning proper to be attributed to the definition of agricultural products as that definition is incoporated in The Income‑tax Act. Upon the legitimacy of such an examination and its effect, if it be admissible, their Lordships agree with the opinion expressed by Latham, C. J. To interpret the incorporated definition in the second Act by an analy sis of its exact meaning in the substantive provisions of the first Act, where that definition applies only unless the context or subject‑matter otherwise indicates or requires, is not a rational procedure. It is however permissible, inasmuch as under the Co‑operation Act the term agricultural products is almost entirely used in connexion with rural societies, to take into account the activities which are open to those societies under the Co‑operation Act. They may explain the general meaning and application of the definition. The only relevant matter however that emerges from a consideration of section 7 of the Co‑operation Act, where those activities are enumerated, is that in them a distinction is drawn between agricultural products and products which are manufactu red out of agricultural products or result from their treatment. In the general contemplation of the definition ,therefore treatment of an agricultural product may result in an article which is not an agricultural product within the definition. The point at issue under the first contention of the appellant his, as Rich J. observes, a narrow one and it is within a small compass. Their Lordships agree with Rich J. that products include products derived at some remove from the farmer's land. It may be that agricultural products include articles which are not agricultural produce, but it does not follow that all articles fal ling according to common conception within the genus agricultural produce‑and butter is such an article‑are agricultural products as defined. The definition demands that the facts bearing on the production of the particular article under consideration are to be taken into account. The treatment to which the raw material is subjected and the circumstances in which it is accorded that treatment may be such that the finished article cannot be fairly regarded as a product of the use of the land to which the raw material owes its origin. In this case the relevant land is exclusively the farmer's land. The use to which that land is put is the production of milk and cream and, stating the case at its highest in favour of the appellant, production with a view to the subsequent conversion of cream into butter. Their Lordships are prepared to assume that, did the farmer himself make the butter, such butter would be an agricul tural product within the meaning of the definition. In such a case the farmer uses or cultivates his land for the production ‑of butter just as he uses or cultivates it for the production of milk and cream. But from the fact that butter may be an agricultural product as defined it does not in their Lordships' view follow that butter which is not solely the product of the farmer's use or cultivation of his land must also be an agricultural product as defined. In this particular case such use or cultivation results only in one definite product‑cream. At that stage a distinct organized industry appears on the scene. Is the finished product produced by the factory operation the relevant butter ‑to be properly characterised as the product of the use of the land to which the raw material owes its origin? Or, to put the point in another way, are the operations of this industry such that rightly viewed they form part of the chain linking the ultimate result‑the relevant butter‑to the use of the farm land? The exact statement of a question usually supplies the answer. In this case it does not, for the question is largely one of degree; and it does not; surprise their Lordships that different answers have been given to it. In their Lordships view the answer is in the negative. In their opinion an affirmative answer would fail to give due weight to , the place held by manufacturing societies in the working economy of the State. 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 they product of the former industry. The appellant's first contention in their Lordships' opinion therefore fails. The conclusions at which their Lordships have arrived render it unnecessary for them to express any opinion upon the meaning of the phrase "of its members" and they accordingly do not propose to deal with that matter. Their Lordships will humbly advise His Majesty that this appeal be dismissed. The appellant will pay the costs of the appeal. K.M.A. Appeal dismissed.