Commissioner of Taxation (NSW) v Stevenson

The Commissioner of Taxation (NSW) appealed to the High Court of Australia from a decision of the Supreme Court of New South Wales. The dispute concerned the taxability of a distribution of company assets to a shareholder, Mary Stevenson, which included a proportion of the company's undistributed profits.

The legal issues before the High Court were whether the sum received by the shareholder, which represented a portion of the company's accumulated trading profits, constituted assessable income under section 11(b) of the *Income Tax (Management) Act 1928* (NSW). Specifically, the court had to determine if the distribution, made in the context of an irregular and arguably invalid voluntary liquidation, was a dividend, profit, or bonus within the meaning of the Act, or if it represented a distribution of capital.

A majority of the High Court (Rich, Dixon, Evatt, and McTiernan JJ.) held that no part of the money received by the shareholder was a dividend, profit, or bonus within the meaning of section 11(b) of the Act. Their Honours reasoned that section 11(b) was intended to capture distributions of profit made by a company as a going concern, but not distributions made in the retirement or extinguishment of shares. In this case, the distribution was made in the context of a purported liquidation, and the court found that the liquidation process was invalid due to procedural irregularities in the calling of shareholder meetings. Therefore, the distribution was not a detachment of profit from a company operating as a going concern, but rather a distribution of assets in a flawed winding-up.

The appeal was allowed, and the assessment against the taxpayer was set aside.