Colonial Mutual Life Assurance Society Ltd v Federal Commissioner of Taxation

The appellant, Colonial Mutual Life Assurance Society Ltd., a mutual life-assurance company, appealed against an income tax assessment that included a sum of £27,713. This sum represented the excess of amounts realised from the sale and maturity of securities over their average cost during the income year 1940. The company's primary object was to conduct life assurance and other insurance business, which involved investing its funds to achieve a specific effective interest yield.

The legal issues before the court were whether the £27,713 was assessable income of the appellant. Specifically, the court had to determine if this amount constituted a "profit arising from the carrying on or carrying out of a profit-making undertaking or scheme" within the meaning of section 26(a) of the Income Tax Assessment Act 1936-1941, or if it was income according to ordinary usages and concepts. The appellant argued that the transactions were merely realisations of investments and not part of a profit-making scheme, while the Commissioner contended that the activities amounted to carrying on a business or profit-making undertaking.

The court reasoned that while the appellant's general policy was to hold securities as investments rather than to traffic in them, the variation and switching of investments were undertaken with the specific purpose of increasing the effective interest yield. This active management of investments, aimed at enhancing returns, was considered an operation of business and a profit-making undertaking. The court applied the principle that enhanced values obtained from the realisation or conversion of securities are assessable where the activity is not merely a change of investment but an act done in the carrying on or carrying out of a business. The court affirmed the decision of Starke J., finding that the surplus of £27,713 was assessable income.

The appeal was dismissed, and the Commissioner's assessment was upheld. The sum of £27,713 was therefore included in the appellant's assessable income for the relevant financial year.