Commissioner of Taxation of the Commonwealth of Australia v Kelly Ford Pty Ltd

[1984] FCA 78

Re: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
And: KELLY FORD PTY. LIMITED; KELLY WHOLESALE PTY. LIMITED; BANE FINANCE PTY.
LIMITED and DATIVAL MERCHANDISING PTY. LIMITED
No. G141 of 1982
Gift Duty
84 ATC 4205 / 15 ATR 500 / 52 ALR 535 / 3 FCR 469

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Bowen C.J.(1), McGregor(2) and Sheppard(3) JJ.

CATCHWORDS

Gift Duty - Four party scheme - Grant of options over new motor vehicles - Sales "subject to option" - Options declined - Onus - Order of transactions - Whether options were "contingencies" - Whether options have a nil value - Whether optionee received gift by optionor declining option - consideration of meaning of "commercial benefit".

Gift Duty Assessment Act 1941 ss.4(1), 14(1)(f), 18(1)(a), 23.

Gift Duty - Objections and appeals - Onus of proof - Nature of onus borne by taxpayer - Whether Commissioner has onus of proving existence of a gift as such - Gift Duty Assessment Act 1941 (Cth), ss 4(1), 23.

Gift Duty - Transactions as part of sales tax minimisation scheme - Option to purchase vehicle - Sale subject to option - Further sale subject to option - Whether any transaction or step involved a "gift" - Whether scheme as a whole involved a "gift" - Whether exercise of option merely a "contingency" - Gift Duty Assessment Act 1941 (Cth), ss 4(1), 18(1)(a). ale) and

HEADNOTE

Kelly Wholesale Pty Ltd (Kelly Wholesale) and Kelly Ford Pty Ltd (Kelly Ford) were related companies which engaged in the distributorsh ip and sale of new motor vehicles. Bane Finance Pty Ltd (Bane) and Datival Merchandising Pty Ltd (Datival) were related companies but neither was related to the two Kelly companies. The controllers of Bane and Datival devised a scheme which it was said could be used to save sales tax otherwise payable by the Kelly companies on the sale of vehicles. The Kelly companies agreed to the scheme and it was put into operation as follows:

(1) Kelly Wholesale purchased a new vehicle from the manufacturer.

(2) Kelly Wholesale then granted to Bane an option to purchase the vehicle. The option fee was 80 per cent of the wholesale value and the exercise price was 20 per cent of that value.

(3) Kelly Wholesale then sold the vehicle, but subject to the option, to Datival for 20 per cent of the wholesale value.

(4) Datival then sold the vehicle to Kelly Ford, still subject to the option, for the price it paid less than one dollar, together with the sales tax payable on that sale, being the last wholesale sale.

(5) Kelly Ford obtained from Bane its agreement that it would not exercise the option. In consideration, Kelly Ford paid to Bane an amount equal to the option fee previously paid by Bane to Kelly Wholesale less than one dollar, together with 25 per cent of the sales tax said to have been saved through the operation of the scheme.

Assessments of gift duty against each of the companies were made, and objections to the assessments were disallowed. On appeal to the Supreme Court of New South Wales (Hunt J.), the objections were upheld. The court found that although the transactions in steps (2) to (5) were completed within a matter of minutes, and the same procedure was followed each day for a new batch of vehicles, the transactions nevertheless occurred in the order stated above, as contended for the respondent companies, despite the Commissioner's submissions to the contrary. It was further held that there was no gift in any transaction. The Commissioner appealed to the Federal Court, claiming that Hunt J. was in error as to the order of the transactions, but that even if his Honour's findings to that order were correct, there were gifts in each of steps (3), (4) and (5). This was said to follow because it was obviously agreed by all the companies that Bane would not exercise its option; the option was therefore of no value. Alternatively, the Commissioner claimed that the exercise of the option was merely a "contingency" which should be disregarded by virtue of s. 18(1)(a) of the Gift Duty Assessment Act 1941 (Cth). The Commissioner, however, did not seek to argue that the transactions were a sham. The companies claimed that the onus was on the Commissioner to show an inadequacy of consideration in one or more of the transactions, and that this onus had not been discharged, because, in the form in which the transactions were carried out, each party received full value.

Held (per curiam): (1) Section 23 operates only to place an onus on a taxpayer "donor" to show, if he seeks to do so, that an assessment is excessive, but it does not impose on a person assessed the onus of proving that he was not a "donor", that is, the onus of proving there was not gift. It was for the Commissioner to show that there was a gift, the taxpayer's onus being limited to proving the gift duty assessed was excessive.

Trautwein v. Federal Commissioner of Taxation (1936) 56 CLR 63, distinguished.

(2) Whilst it is proper to look at the transactions as a whole as well as individually, it has not been shown that there was inadequate consideration for any or all the transactions. In this regard there is no evidence to show that the transactions did not occur in the order found by the trial judge, consistent with the intention of the parties.

Inland Revenue Commissioners v. Plummer (1980) AC 896; W.T. Ramsay Ltd v. Inland Revenue Commissioners (1982) AC 300, referred to.

Per Bowen C.J. and McGregor J. (1) There was no agreement that the option should be declined before the sale to Datival or the sale to Kelly Ford. Those sales took place subject to the option which had a value.

(2) The existence of the option was not a "contingency" within s. 18(1)(a), but an existing legal right.

Federal Commissioner of Taxation v. St. Helens Farm (ACT.) Pty Ltd (1981) 146 CLR 336 at 385, per Mason J., applied.

(3) Bane's agreement to decline the option conferred no benefit on Kelly Wholesale, because it sold to Datival subject to the option. The relinquishment of the option operated to deprive Kelly Wholesale of its right to sue Datival in the event that Datival refused to comply with a demand from Bane for the vehicle in the exercise of Bane's option. It follows that the loss by Kelly Wholesale of that legal right must be taken together with the cancellation of its obligation to sell to Bane should the latter exercise its option. It has not been shown that there resulted any overall benefit to Kelly Wholesale.

Per Sheppard J. (1) Bane was bound by the oral arrangements between the parties that it would not exercise the option, and there was never any real possibility of it breaching those arrangements. Furthermore, the exercise of the option was only a "contingency" within s. 18(1)(a). For both reasons the option should be ignored.

Federal Commissioner of Taxation v. St. Helens Farm (ACT.) Pty Ltd (1981) 146 CLR 136, referred to.

(2) Even ignoring the option, no inadequacy of consideration has been shown. This is because the interdependence of all the transactions must be taken into account. Each party was bound contractually to the others to carry out the pre-agreed steps. Thus, the consideration for the sale to Datival included the latter's promise to on-sell immediately to Kelly Ford as prearranged. Similarly the consideration for the sale to Kelly Ford included the latter's promise to pay moneys to Bane. Finally, the relinquishment of the option conferred no benefit on Kelly Wholesale; it was Kelly Ford which received the benefit by obtaining a clear title to the vehicle, but it has not been shown that the moneys it paid to Bane were inadequate in this respect.

HEARING

Sydney, 1983, August 15, 16; 1984, April 4. #DATE 4:4:1984

APPEAL

Appeals from a decision of the Supreme Court of New South Wales allowing the respondents' appeals against the disallowance of their objections to gift duty assessments based on gifts said to have been made in 1978.

T. Simos Q.C. and G. Wilson, for the appellant.

D.A. Staff Q.C. and D.G. Hill, for the respondents.

Cur. adv. vult.

Solicitor for the appellant: T.A. Sherman, Acting Commonwealth Crown Solicitor.

Solicitor for the respondents: Kalyk Partners.

F.P.C.

ORDER

1. The appeals be dismissed.

2. The Commissioner of Taxation of the Commonwealth of Australia pay to Kelly Ford Pty. Limited, Kelly Wholesale Pty. Limited, Bane Finance Pty. Limited and Datival Merchandising Pty. Limited their costs of the appeals.

Appeals dismissed with costs.

JUDGE1

The Commissioner of Taxation (the "Commissioner") appeals against a decision of the New South Wales Supreme Court upholding appeals against gift duty assessments by Kelly Ford Pty. Limited ("Kelly Ford"), Kelly Wholesale Pty. Limited ("Kelly Wholesale"), Bane Finance Pty. Limited ("Bane") and Datival Merchandising Pty. Limited ("Datival"). These appeals were heard together both before the trial Judge and before this Court. The facts and the relevant legislation are set out in the judgments of McGregor J. and Sheppard J.

A preliminary submission put by Counsel for the Commissioner was that a proper construction of s.23 of the Gift Duty Assessment Act 1941 (the "Act") places the onus of proof in all gift duty cases on the txpayer. It was argued that, once an assessment is made, there is a liability on the donor and donee to pay the assessed amount, except for such amount as they can demonstrate is excessive. We were referred to Trautwein v Federal Commissioner of Taxation (1936) 56 C.L.R. 63 at p.89, although it was conceded that the legislative provision there considered (s.36 of the Income Tax Assessment Act 1922-1934) was distinguishable on its wording. Counsel were not able to refer the Court to any reported decisions regarding the onus of proof in the legislation under consideration.

It is true that the effect of s.23 of the Act is to place the onus of proof on the taxpayer concerning the question whether the amount of an assessment is excessive. However, the Commissioner's submission goes further than this in claiming that the onus also lies on the taxpayer concerning the question whether there is a gift at all. In my view, such a submission is contrary to the express words of the section, which speaks of "donor" and "donee". These terms are defined in sub-s.4(1) of the Act:

"4(1). In this Act, unless the contrary intention appears -

. . . . "donee" means any person who acquires any interest in property under a gift, and, where a gift is made to a trustee for the benefit of another person, includes both the trustee and beneficiary;

"donor" means any person who makes a gift; . . . . "

It is thus necessary that before a person can be classed as a "donor" or a "donee" that there be a "gift". If there is no gift, there is no "donor" or "donee" and s.23 has no application. Therefore, before the trial Judge, the onus of proof lay on the Commissioner to establish that a gift or gifts had been made.

I turn to the question of the order of the transactions. Counsel for the Commissioner put several alternative submissions, arguing that liability for gift duty accrued whether or not the transactions took place in the order contended for by the respondents. In part, his submissions were made on the footing that the respondents had performed various steps out of the sequence claimed. For example, it was argued that the respondents intended at the time of the transactions that the option be declined before step 3, that is, before the vehicle was sold "subject to option" by Kelly Wholesale to Datival.

The trial Judge held that a four party agreement existed between the respondents which came into effect at least by the time the scheme was put into operation. The evidence suggests that a physical settlement took place at which each transaction was concluded: the documents were prepared in advance and handed over in a bundle. I accept the respondents submission that the actual order of handing documents over at a physical settlement, and the signing of documents prior to a settlement, cannot be a conclusive determination of the order of transactions. In Inland Revenue Commissioners v Plummer (1979) 1 Ch. 63 at p.77, Buckley L.J., in ascertaining the nature of certain payments, stated:

"If the transaction involves a series of preconceived steps, the performance of each of which is dependent on the others being carried out in accordance with a common intention of the parties, the nature and effect of the whole scheme may have to be taken into consideration in determining the nature of the annual payments: see Ransom v Higgs (1974) 1 W.L.R. 1594, per Lord Wilberforce at p. 1612."

In my view, the same considerations are presently applicable. It would be adopting a far too narrow and technical view of the law to hold that the time of the creation and extinguishment of rights at a settlement is governed solely by the order in which a party, or an uninstructed clerk, happens to hand over a document. Further, where there is an integrated scheme, the effect of considering the intention of the parties and "the nature and effect of the whole scheme" does not lead, as Counsel for the Commissioner submitted at one point, to the conclusion that parties need just assert that they intended to get the transaction right and what they actually did is irrelevant. The Court will not attempt to "construct" a series of transactions into a particular order so as to give effect to the participants' motivation to avoid taxation or indeed any other motivation. It will, in a situation such as the present, examine the relevant transactions and, by considering various factors including the parties' intention as to the order of the transactions, determine when rights were created or extinguished.

Counsel for the Commissioner further submitted that, regardless of the order of the handing over of the documents, the evidence indicated that Bane agreed not to exercise the option (step 5) before steps 3 and 4 took place. Thus, it was submitted, the vehicle was sold in steps 3 and 4 for only 20% of its true value, resulting in a gift of 80% of its value. He drew the Court's attention to clause 2 of the option agreements which read:

"2. The undersigned warrants itself to be the true owner of the said goods and has not entered into any agreement which if put into effect, would prevent the sale of the said goods taking place and the undersigned agrees that during the period of this option, it will not enter into any such agreement without your written consent and will not do any act that would prejudice your rights under this option."

Counsel for the Commissioner submitted that this clause prevented property in the car from passing to Datival until the option was declined, as any such sale would be in breach of the option agreement.

Even if such a breach were established it is difficult to see that it would prevent property in the car from passing. Bane would merely possess a remedy in damages. However, I am not persuaded that there was any such breach - the sales in step 3 and 4 were made "subject to option". These transactions all took place as part of a four party agreement. It cannot be argued that Bane or Datival were ignorant of the option's existence. Thus, it cannot be said that property in the car could not pass while the option was in force, that the passing of property was somehow suspended until the option was declined.

Counsel for the Commissioner further submitted that even if it were possible that property in the car could pass at that time, the parties' intention was that the option was to be declined before step 3. On many of the documents by which Bane declined the option were the words "provided you sell the goods for. . . . ", thus suggesting that the option was declined before steps 3 and 4. However, the evidence suggested that these words were typed by an unknown person into the documents after their execution, although the trial Judge apparently accepted the submission that they accorded with Bane's understanding of the arrangement.

I am not persuaded that there was any agreement between the parties or any grouping of them relinquishing the option before the property in the car passed in steps 3 and 4. The trial Judge found that the events occurred in the chronological order contended for by the respondents. From a consideration of the evidence, the relevant documents and the trial Judge's findings as to the parties intentions and the existence of a four party agreement, I conclude that he did not fall into error in so deciding.

Counsel for the Commissioner submitted that even if the agreement not to exercise the option occurred last, and the transactions were seen to take place in the chronological order referred to by the respondents, there was still liability for gift duty in some or all of the four instances covered in the notices of appeal. He first contended that para. 18(1)(a) of the Act requires that the option be given a nil value as it is a "contingency", and thus property in the car passed for inadequate consideration.

However, in my view, this submission involves a misinterpretation of the word "contingency". A "contingency" is "an event conceived of as a possible occurrence in the future" (Federal Commissioner of Taxation v St. Helens Farm (A.C.T.) Pty. Limited (1981) 146 C.L.R. 336 at p.385 per Mason J.) The vehicle here is sold at a lower monetary value because it is sold "subject to option". In other words, the car is sold by Kelly Wholesale to Datival in step 3 for 20% of its true wholesale market value plus an obligation (promise) to Kelly Wholesale to sell it to Bane at a certain price if it is required to do so. The promise is not a "contingency" but a legal right, to which is to be ascribed a value. The promise may be required to be performed or it may not. The contingency may be said to depend upon whether the option is exercised or not. If one had to estimate the likelihood of the option being exercised, it could well be regarded as negligible. This would suggest the promise might be of little value. However, if contingencies are to be disregarded, the promise would appear to stand at face value.

Counsel for the Commissioner conceded that if the option was held to have some value, it would not be contended that its value should be assessed at something less than 80% of the value of the car. However, Counsel for the Commissioner further argued that, even if para. 18(1)(a) did not require that no allowance be made for the option, the true value of the option was still nil because Bane was either legally obliged or at least certain in practice not to exercise the option. As stated above, I accept the trial Judge's finding that there was a four party agreement that governed the series of transactions. This agreement must be considered as a whole to determine the rights and liabilities of the parties; since there is such an agreement, it would be wrong merely to examine each particular transaction separately and to ignore the overall group of transactions.

The respondents acknowledge that the document declining to exercise the option was handed over virtually at the same time, and certainly at the same settlement, as the document granting the option. It was certain that the option would be declined. However, it must be remembered that Counsel for the Commissioner expressly disavowed any contention that the total arrangement (or any particular transaction) was a sham. This was despite the fact that the option agreement was never intended to and did not in fact operate for more than an instant. I offer no opinion as to the correctness of the Commissioner's concession which was no doubt prompted because the transactions were assessed for gift duty and not sales tax. For similar reasons, Counsel for the Commissioner did not invite the Court to disregard any steps in the series of transactions on the basis that they had no business purpose apart from the avoidance of a liability to taxation: W.T. Ramsay Limited v Inland Revenue Commissioners (1982) A.C. 300; Furniss v Dawson (House of Lords, delivered 9 February 1984, see The Times of 14 February 1984).

Once the transactions are treated as genuine it is clear that it is only certain in practice that the option will be declined because it is equally certain that Bane will be paid to decline it. The option is granted, the car is sold subject to the option, a payment is made to Bane and then Bane declines to exercise the option. Once each step is seen as genuine and in this order it is clear that, in the transactions in steps 3 and 4, consideration is given which includes 20% of the wholesale price and the obligation assumed by accepting the condition "subject to option". The option is valuable and a payment is required before it is declined. There is no legal requirement that, if Bane is not paid, the option will not be exercised.

Thus, when the transactions are so understood, it is clear that there is no gift occurring in either step 3 or step 4 or between Kelly Ford and Bane in step 5. Even on such a basis, Counsel for the Commissioner further submitted, there was nevertheless a gift made from Bane to Kelly Wholesale in declining the option. This was said to be because Bane's declining of the right to buy the vehicle from Kelly Wholesale for 20% of its value conferred a benefit on Kelly Wholesale who had made no payment for this.

I also reject this submission. It is true that Kelly Wholesale is under a legal obligation to sell the vehicle to Bane at a price of 20% of its value if Bane exercises its option. However, having sold to Datival "subject to option", Kelly Wholesale also has an enforceable legal right that Datival must sell the vehicle to Bane if Bane exercises the option. If Datival breaks this agreement, Kelly Wholesale would have a remedy in damages. Thus if it is assumed that Bane's declining of the option is effective, Kelly Wholesale does not gain an advantage. It loses its legal obligation to sell the car to Bane but also loses its legal right to compel Datival to sell the car if the option is exercised.

Because I have found that no gifts were made in any of the transactions, it is unnecessary to consider the respondents' alternative submission that they are protected from liability for gift duty by para. 14(1)(f) of the Act. I note in passing, however, that it may be there is a distinction to be drawn in certain circumstances between "commercial benefit" and "fiscal advantage" (cf. Federal Commissioner of Taxation v Patcorp Investments Ltd. (1972) 140 C.L.R. 247 at p. 290).

I would dismiss the appeals with costs.

JUDGE2

THE COMMISSIONER OF TAXATION (the Commissioner) appeals against decisions on 23 July 1982 by a judge of the Supreme Court of New South Wales in respect of appeals by each of KELLY FORD PTY. LIMITED (Kelly Ford) KELLY WHOLESALE PTY. LIMITED (Kelly Wholesale) BANE FINANCE PTY. LIMITED (Bane) and DATIVAL MERCHANDISING PTY. LIMITED (Datival) (who may be collectively referred to as the respondents) in respect of gift duty which they had contended had been wrongly assessed against them. The matters, by agreement, were heard together. The respondents were successful. Against those decisions, the Commissioner has appealed to this Court.

Before the learned primary Judge, affidavit and viva voce evidence was given. It seems there is little dispute about the primary facts giving rise to the appeals though some about the order of events.

Those facts were described by learned primary Judge as arising out of procedures devised and put into operation to reduce the burden of sales tax otherwise payable by respondents (on the sale of new Ford motor vehicles). A further object - the learned trial judge used the word "fundamental" - achieved by the various documents used in the transactions which will be mentioned below was to give the retail purchasers of the Ford motor vehicles direct access to the Ford Sales company in relation to the warranty given with any vehicle. His Honour noted and it is not disputed that Kelly Ford and Kelly Wholesale were related to each other by way of common directors and shareholders; Bain and Datival were similarly related; but each group is independent of the other.

His Honour referred to conversations supporting a four party agreement between the parties.

Mr. Rodney Joseph Joyce, the principal operator and executive Bane and Datival said in evidence that those two companies did not have any business prior to the transactions the subject of the appeal; nor any business subsequently to those transactions; that then they basically "just ceased trading".

Though the Kelly companies had changed their names (Kelly Ford to Leguna Investments Pty. Limited and Kelly Wholesale to Willagee Investments Pty. Limited), it will be convenient here to refer to the respondents, as did his Honour, by their original names, except where the other names appear in quotation.

Mr. Brian Roy Kelly, a director of the five Kelly companies referred to what passed at a meeting between Messrs Stanfield and Butler, the Manager and Accountant of the Kelly Companies and Mr. Joyce a Director of Datival and Bane. Mr. Kelly quoted what he said was suggested by Mr. Joyce -

"A course of dealing can be established by the Companies to each of their benefits and by which the sales tax presently payable by (Willagee Investments Pty. Limited) might be reduced. The steps which would be involved are:

Leguna Investments Pty. Limited would notify Willagee Investments Pty. Limited of the details of the Ford motor vehicles which Leguna Investments Pty. Limited required for retail sale;

Willagee Investments Pty. Limited would order from Ford Motor Company of Australia Limited the requisite motor vehicles to meet the orders of Leguna Investments Pty. Limited;

Willagee Investments Pty. Limited would grant to Bane Finance Pty. Limited an option to purchase each of these motor vehicles;

Leguna Investments Pty. Limited would then pay to Bane Finance Pty. Limited amounts to relinquish its rights under each option provided that Bane Finance Pty. Limited would ensure that each relevant motor vehicle would be sold by Willagee Investments Pty. Limited to Datival Merchandising Pty. Limited which in turn would sell to Leguna Investments Pty. Limited.

Is this acceptable to you?

I replied to the said Rodney Joyce, "Yes that is acceptable."

I say that both Leguna Investments Pty. Limited and Willagee Investments Pty. Limited participated in the arrangement in the course of the carrying on of their respective businesses and both Companies derived a profit or other commercial benefit therefrom."

An example of the option and the words declining was -

"TO BANE FINANCE PTY. LTD. OPTION NO. 003

IN CONSIDERATION of the sum of $6361.45 paid to the undersigned by you (the receipt whereof is hereby acknowledged) the undersigned grants to you or your nominee an option to purchase the below described goods for the sum of:

$1710.77 which included sales tax in the sum of $368.77 upon the following terms and conditions:

1. This option may be exercised by you or your nominee by notice in writing handed to the undersigned at or before noon on 17 AUG 1978

2. The undersigned warrants itself to be the true owner of the said goods and has not entered into any agreement which if put into effect, would prevent the sale of the said goods taking place and the undersigned agrees that during the period of this option, it will not enter into any such agreement without your written consent and will not do any act that would prejudice your rights under this option.

3. SPECIAL CONDITIONS

DESCRIPTION OF GOODS

Ford Fairmont GXL Sedan Engine JG 32UJ 36338

DATED this 17th day of July 1978 SIGNED for and on behalf of)

Brian Kelly N.R. Stanfield

Witness KELLY WHOLESALE PTY. LTD.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

KELLY WHOLESALE PTY. LTD. OPTION No. 003 17.7.1978 We hereby acknowledge the grant of the option to purchase the goods indentified in the abovementioned option. The option is hereby declined * - * * delete one. Bane Finance Pty. Ltd.

R. Joyce."

He noted the evidence by Mr. Joyce as to conversations with Mr. Brian Roy Kelly, and Mr. Kym Butler, external auditor to the Kelly group of companies. Mr. Kelly asked what was to stop Bane Finance from exercising its option after Kelly Ford had purchased the vehicle; Mr. Joyce replied -

"That can't happen because it is a condition of Kelly Ford's purchase that the option will be relinquished by my company (meaning Bane Finance)".

He also referred to the evidence by Mr. Kelly who was asked what there was to stop Datival from refusing to sell the car to Kelly Ford, then selling it to someone else. Mr. Joyce replied -

"Nothing except for the fact that the car would still be subject to the option and the arrangement is that Kelly Ford will only pay for the option to be relinquished if the car is sold by my company to it."

A diagram setting out the steps between the companies was produced in conversations between respondents' representatives. Mr. Kelly in an affidavit referred to what was said by Mr. Butler. Referring to that, there was a conversation between Mr. Kelly and Mr. Butler thus -

"Do you realise that at this stage one of the independant companies owns the car and another owns an option over the car." I replied, "Yes I do." Mr. Butler then replied: "You will have to rely upon Mr. Joyce's honesty and our agreement that the arrangement will be carried out in the proper manner." I replied: "I understand that." Mr. Butler then said: "The transactions will all happen on the same day anyway and it will be impractical for someone to take off with the money as all parties will be making use of the same Bank and will be depositing their cheques at the same time." I then said to Mr. Butler and to Mr. Joyce, "That appears to be acceptable. I am prepared to go ahead subject to satisfactory Q.C.'s advice.""

The scheme devised by respondents as found by the learned trial Judge and the order of the various steps are set out in his judgment thus -

(1) Each motor vehicle was purchased from the Ford Sales Company of Australia Limited by Kelly Wholesale. . . . .

(2) Kelly Wholesale then granted to Bane Finance an option to purchase the vehicle. The price paid by Bane Finance for the grant of the option was 80% of the wholesale market value. The exercise price was 20% of that value.

(3) Kelly Wholesale next sold the vehicle (but subject to the option) to Datival for the same amount as the exercise price of the option (that is, 20% of the wholesale market value). Datival possessed a sales tax certificate which enabled it to purchase the vehicle without any obligation to pay sales tax.

(4) Datival then sold the vehicle (again subject to the option) to Kelly Ford for the price it paid plus $1, together with the sales tax which became payable at that stage, it being the last wholesale transaction. Such sales tax is payable upon the "sale value" of the goods which, in the ordinary case, is "the price for which the goods are sold". Provided that there is no relevant relationship by way of shareholding or control between the vendor and the purchaser, the fact that the goods are sold for an amount less than their fair and reasonable wholesale value is irrelevant to the amount of sales tax payable. In these cases, the sales tax was therefore assessed upon approximately 20% of the true wholesale market value, a considerable saving for Kelly Ford.

(5) Finally, to enable it to sell the vehicle to the retail customer clear of the option granted by Kelly Wholesale to Bane Finance, Kelly Ford obtained from Bane Finance its agreement that it would not exercise that option (referred to, perhaps misleadingly, as a relinguishment of the option). The amount paid to obtain that agreement was the price which Bane Finance had paid to Kelly Wholesale for the original grant of the option less $1, together with 25% of the savings in the amount of sales tax payable by Datival and reimbursed by Kelly Ford."

Words underlined were to emphasise the chronological order his Honour found. In part of his submissions senior counsel for the Commissioner questioned that this was indeed the order in which the transaction was carried out.

His Honour was further satisfied that sale of the motor vehicles by the Ford Motor company to Kelly Wholesale was a proper description of the transaction. This has not been the subject of appeal or disputation before us.

The steps by which any particular operation of the scheme was implemented was stated by his Honour as follows -

"When a vehicle was ordered by Kelly Wholesale the Ford Sales Company raised an invoice addressed to both Kelly Wholesale and Kelly Ford and sent it to Esanda for payment on behalf of Kelly Wholesale, to whom it was then forwarded by Esanda. (At times the motor vehicle preceded the arrival of the invoice from Esanda). When the motor vehicle was sold to the retail customer, the latter signed an order form which was addressed to the Ford Sales Company by which he offered to purchase the vehicle from that company through the agency of Kelly Ford; Kelly Ford then raised a retail sales invoice by which it stated that the vehicle was sold by it on behalf of the Ford Sales Company. The fundamental objects of these documents was clearly both to give the retail customer direct access to the Ford Sales Company in relation to the warranty which that company gives upon its vehicles and to limit that company's obligations under that warranty without any enthusiastic additions thereto made by the dealers. Just how such a relationship existed in the context of the sale by the Ford Sales Company to Kelly Wholesale which had already taken place is not clear to me, but it is unnecessary for me to unravel that mystery in this case, if indeed it is possible to do so, for it was realistically conceded by the Commissioner that these particular documents may not have reflected the intentions of the parties. All that I need to say is that I am satisfied that, in relation to this first step of the scheme, property passed directly from the Ford Sales Company to Kelly Wholesale."

Relying on s.23 of the Gift Duty Assessment Act 1941 (the Act) the Commissioner assessed gift duty payable pursuant to s.11. of the Act.

Its definition section (s.4), ascribed meanings for words or phrases, unless a contrary intention appears; the following should be noted -

"disposition of property" means any conveyance, transfer, assignment, settlement, delivery, payment or other alienation of property and, without limiting the generality of the foregoing, includes:-

(a) . . . .

(b) . . . .

(c) the grant or creation of any lease, mortgage, charge, servitude, licence, power, partnership or interest in property;

(d) the release, discharge, surrender, forfeiture or abandonment, at law or in equity, of any debt, contract or chose in action, or of any interest in property;

(e) . . . .

(f) any transaction entered into by any person with intent thereby to diminish, directly or indirectly, the value of his own property and to increase the value of the property of any other person;"

"gift" means any disposition of property which is made otherwise than by will (whether with or without an instrument in writing), without consideration in money or money's worth passing from the disponee to the disponor, or with such consideration so passing if the consideration is not, or, in the opinion of the Commissioner, is not, fully adequate;"

"person" includes all bodies or associations, whether corporate or unincorporate;

"property" includes real property and personal property and every interest in real property or personal property;"

Other sections referred to include -

14.(1) Notwithstanding anything contained in this Act, gift duty shall not be payable in respect of -

. . .

(f) any gift which is made in the course of carrying on a business, for the purpose of obtaining any commercial benefit . . . . . by -

. . .

(ii) an incorporated company the shares or stock of which are not or is not quoted in the official list of any Stock Exchange, if the Commissioner is satisfied that the donee is not a director of the company or is not connected by ties of blood or marriage with any director of the company . . .

18.(1) For the purpose of computing the value of a gift -

(a) allowance shall be made in respect of any contingency affecting the interests of the donees or any of them;

(b) (c) . . . . "

20. Any person, whether a donor or donee or not, shall, if required by the Commissioner, furnish such returns or fuller or other returns for the purposes of this Act as the Commissioner requires.

21. From the returns, and from any other information in his possession, or from any one or more of these sources, the Commissioner shall make an assessment of the amount of the gift duty payable in respect of any gift.

23. If any donor or donee makes default in furnishing any return, document or information, or the Commissioner is not satisfied with any return, document or information furnished, he may cause an assessment to be made of the amount on which, in his judgment, gift duty ought to be levied, and the donor and donee shall be liable to pay gift duty thereon, except so far as the amount is, on appeal, shown to be excessive."

The duty was assessed on each respondent in relation to each of the steps 3 to 5 above upon the basis that there had been a disposition of property without consideration; or adequate consideration. Notice of objection against assessment of duty was given expressing the same grounds by each of the respondents. The objections were disallowed. By letter dated 9 October 1979 Kelly Ford advised the Commissioner that it was dissatisfied with that decision and requested the objection to be treated as an appeal and forwarded to the Supreme Court of New South Wales. There followed, on 25 February 1980, the transmission of the objection. A similar pattern was followed by the other respondents. With the consent of the parties all objections were heard together.

His Honour accepted the arguments presented by the respondents that there was in each transaction no element of bounty; no party made any profit at the expense of others; and each followed a commonly intended course of dealing in order to reduce the burden of the sales tax payable. He agreed with submissions made on behalf of the (then) appellants that none of the transactions amounted to a gift. His reason for so doing is set out in his judgment thus -

"I do so on the basis that there did exist a four-party agreement which came into effect at least by the time when the scheme was put into operation. The existence of such an agreement was indeed one of the principal arguments put forward by the Commissioner. I accept that it is necessary to look at the whole scheme and course of dealing in order to ascertain the true character of each transaction. When looked at in that way, it is obvious that at the time of each transaction in question the value of the qualification "subject to option" was a real one and, because of that background, could not be dismissed as valueless in the way for which the Commissioner contends. The Commissioner's argument fails, in my view, because he has ignored the effect to be given to each individual transaction by the overall agreement. Basic to his argument, as I understand it, is the proposition that property in the vehicle did not pass under each transaction until the qualification "subject to option" was disposed of. Yet it is clear from the scheme and the course of dealing as a whole, in my view, that the common intention of the parties was that such property would pass at the time of each transaction."

He also accepted the respondents' submission on s.14(1)(f) of the Act that if any part of the transaction constituted a gift it was one made in the course of carrying on a business for the purpose of obtaining commercial benefit. He upheld the respondents' appeals.

The Commissioner has appealed against each decision on similar ground viz. -

"1. His Honour was in error in holding that the transactions entered into between the respondents involving the purchase and sale of motor vehicles "subject to option" did not give rise to gifts within the meaning of Section 4 of the Gift Duty Assessment Act, 1941 ("the Act").

2. His Honour should have held that the sales of the motor vehicles "subject to option" by Kelly Wholesale Pty. Ltd. to Datival Merchandising Pty. Ltd. constituted gifts within the meaning of Section 4 of the Act.

3. His Honour should have held that the sales of the vehicles "subject to option" by Datival Merchandising Pty. Ltd. to Kelly Ford Pty. Ltd. constituted gifts within the meaning of Section 4 of the Act.

4. His Honour should have held that the agreements obtained by Kelly Ford Pty. Ltd. from Bane Finance Pty. Ltd. not to exercise the options constituted gifts within the meaning of Section 4 of the Act from Kelly Ford Pty. Ltd. to Bane Finance Pty. Ltd.

5. His Honour should have held that the agreements obtained by Kelly Ford Pty. Ltd. from Bane Finance Pty. Ltd. not to exercise the options also constituted gifts within the meaning of Section 4 of the Act from Bane Finance Pty. Ltd. to Kelly Wholesale Pty. Ltd.

6. His Honour was in error in holding that at least by the time when the scheme was put in operation there did exist a four-party agreement.

7. His Honour was in error, if such a four-party agreement did exist, in not determining what were the precise terms of the four-party agreement and the rights and obligations of the parties thereunder.

8. His Honour was in error in holding that at the time of each transaction in question the value of the qualification "subject to option", was a real one, and, because of that background, could not be dismissed as valueless.

9. His Honour was in error in holding that the common intention of the parties was that property in the vehicle would pass at the time of each transaction.

10. His Honour should have held that property in the vehicle did not pass under each transaction until the qualification "subject to option" was disposed of.

11. His Honour was in error in holding that the transactions in question were entered into in the course of carrying on a business for the purpose of obtaining a commercial benefit and were exempt from gift duty pursuant to Section 14(1)(f) of the Act.

12. His Honour should have held that the transactions were entered into to obtain a fiscal advantage and that in the particular circumstances of the case the transactions were not for the purpose of obtaining a commercial benefit within the meaning of Section 14(1)(f) of the Act."

Two further grounds were added with the leave of the court, related to the respondents mentioned -

"RE: KELLY WHOLESALE PTY. LIMITED

13. In computing the value of the gift from Kelly Wholesale Pty. Ltd. to Datival Merchandising Pty. Ltd. his Honour was in error in making an allowance in respect of a contingency affecting the interests of the donee in respect of each of the motor vehicles, namely, the contingency that Bane Finance Pty. Ltd. might exercise its option to purchase each of the said motor vehicles, such allowance being a reduction in the full wholesale value of each vehicle of 80% thereof.

RE: DATIVAL MERCHANDISING PTY. LTD.

13. In computing the value of the gift from Datival Merchandising to Kelly Ford Pty. Ltd. his Honour was in error in making an allowance in respect of a contingency affecting the interests of the donee in respect of each of the motor vehicles, namely, the contingency that Bane Finance Pty. Ltd. might exercise its option to purchase each of the said motor vehicles, such allowance being a reduction in the full wholesale value of each vehicle of 80% thereof."

The Commissioner asks for orders that the judgment of the Supreme Court be set aside and the assessments by the Commissioner be confirmed.

For convenience of reference I annex a copy of a diagram used when making submissions by senior counsel for the Commissioner.

One of the questions discussed before us was whether his Honour was in error as to the order of events he attributed to the transactions. It is common ground that the entire settlement took place on the one day and even at the one time in a matter of minutes. I am not satisfied that any reason has been shown as to why one should differ from his Honour's analysis in this regard. Furthermore, I am not persuaded that any reason has been advanced why one should disagree with the finding of the learned trial judge that the "common intention of the parties" was that (the) property would pass at the time of each transactions. That the transactions should be considered, if considered separately at all, in the order found by his Honour and with the common intention to which I have referred, seems to be consistent with the documentation and the purpose of the parties. Further, I note that no suggestion had been made that the transactions separate or together were a sham.

The various transactions were within the meaning of the definition each a "disposition of property" which, inter alia, means "settlement". The question remains whether the transactions, or any of them, singled out in argument could be said to have constituted a "gift" within the meaning of that expression. It is convenient now to refer to the arguments in respect of the five stages of the scheme devised by the respondents as analysed by the learned trial judge and set out above. The first stage is merely introductory. It shows how Kelly Wholesale became, by transfer from the Ford Motor Company Australia Limited the owner of each vehicle part of the scheme. At the second stage, Kelly Wholesale granted to Bane an option to purchase. The price therefor paid by Bane was -

"80% of the wholesale market value"

No gift duty has been assessed in respect of this stage.

The third stage, as so numbered in the analysis above and on the plan submitted in argument, is the subject of an assessment. At this stage, Kelly Wholesale "sold" the vehicle to Datival for the exercise price of the option, i.e. 20% of the wholesale market value of it. That Datival possessed s Sales Tax certificate is irrelevant to a discussion of the consideration which passed. Senior counsel for the Commissioner argued that Datival received an unencumbered title and " a vehicle worth 100%" but paid only 20%; so there was, he said, inadequacy of consideration to a total of 80% of the value of the vehicle; that was the value of the gift by Kelly Wholesale to Datival.

In the fourth stage as quoted from the analysis and so numbered on the plan, Datival sold the vehicle to Kelly Ford for 20% of its market value plus one dollar plus the amount of sales tax which became payable at that stage. In the same way and for the same reason, Counsel submitted, gift duty was payable by Datival, the value of the gift being the inadequacy of the consideration.

The fifth stage in the analysis and on the plan was one whereby it was agreed between Kelly Ford and Bane that in consideration of Bane undertaking that it would not exercise its option to purchase, Kelly Ford would pay the price which Bane had paid to Kelly Wholesale for the grant of the option less one dollar, i.e. 80% of the wholesale market value of the vehicle, together with 25% of an amount worked out as sales tax. Counsel for the Commissioner submitted that the transaction involved a gift by Kelly Ford to Bane because Kelly Ford got no benefit from the transaction; and a gift by Bane to Kelly Wholesale in that, there being no consideration moving from Kelly Wholesale, Bane agreed not to exercise its option thus releasing Kelly Wholesale from its obligation under the option to sell the vehicle to Bane. It was said that the performance of that obligation if it had existed by Kelly Wholesale would have produced a detriment to it in that it would have lost 80% of the value of the vehicle in the transaction; so the release from this obligation released Kelly Wholesale from the possibility of such a detriment. Thus, it was said, it obtained a benefit from the agreement for which no consideration had passed being a gift in the hands of Kelly Wholesale. Counsel submitted that where the only benefit in the transaction was a tax advantage the expression "commercial benefit" in s.14(1)(f) of the Act did not apply. The section did not mean that duty would not be payable in respect of a gift made for the purpose of avoiding gift duty. A tax advantage could not be described as a commercial benefit, i.e. within the meaning of the section; nor was a profit made out of or by way of avoidance of sales tax or out of savings because Sales Tax was not payable, properly described as a commercial benefit within the meaning of the section. He referred to Gorton v. The Commissioner of Taxation of the Commonwealth of Australia (1964) 113 C.L.R. 604: Bray v. The Commissioner of Taxation of the Commonwealth of Australia (1971) 123 C.L.R. 348 (Bray) at p.347: Federal Commissioner of Taxation v. Patcorp Investments Ltd. (1973) 140 C.L.R. 247 per Gibbs J.(as he then was) at p.289,290: Thomson (Inspector of Taxes) v. Gurneville Securities Ltd. (1972) A.C. 661: F.A. & A.B. Ltd. v. Lupton (Inspector of Taxes) (1972) A.C. 634.

He submitted that Bane, as part of the transaction of relinquishing the option in return for a payment, undertook to ensure that Kelly Wholesale would sell to Datival, and Datival to Kelly Ford; that the only inferance was that the relinquishing of the option took place before step 3, i.e. Kelly Wholesale's sale to Datival, and thus also before step 4.

Counsel submitted that s.23 of the Act placed the onus of proof on the respondent disputing the assessment to show that it was insupportable. He referred to Trautwein v. Federal Commissioner of Taxation (1936) 56 C.L.R. 196 (Trautwein); further, referring to s.18(1)(a) of the Act that the existence of an option if held to exist, is to be ignored as a "contingency" within the meaning of that section; that there was nothing in Bray which led to the conclusion that the rights of Bane under the option, if any, were not a contingency. He referred to Federal Commissioner of Taxation v. St Helens Farm (ACT) Pty Ltd 1980-1981 146 C.L.R. 336 (St. Helens Farm) per Mason J. at p.385.

Senior counsel for the respondents, supporting the primary Judge's decisions, said the options were not relinquished at the time contended by Counsel for the Commissioner. They were executed to be operative when the settlement took effect even if for convenience and on the evidence, they were signed when the notice of relinquishment had been already executed; in fact all the documents were prepared in advance. The real transaction, he said, was simply a contract under which Kelly Wholesale transferred a title in a vehicle in return for a cash payment and a promise that the transferee would transfer it to satisfy the terms of the option if exercised; where if it did not do that possibly with a consequence it would have to pay damages for the difference in value. The promise was one being of value equal to the difference between cash and market value; since the definition of "gift" required that the transaction has to be a disposition of property at less than fully adequate consideration that criterion was not met; there was at all times a fully adequate consideration consisting of the cash and the promise. He referred to the decision of the English Court of Appeal in Inland Revenue Commissioner v. Plummer (1979) Ch.63 per Buckley L.J. at pp.76-77. He submitted that having regard to the overall arrangements between the parties, the learned trial Judge reached the correct conclusion. Referring to Trautwein he submitted that the question of onus did not depend upon a comparison merely of s.36 of the Income Tax Assessment Act 1922-1934 these being considered with s.23 of the Act; though if it did s.36 contained significant words implying an onus which were not present in s.23. Section 39 of the Income Tax Assessment Act, he said, also had an effect related to onus which was not reflected in the Act. Furthermore, he said, the opening words in s.23 of the Act had to be given some value, i.e. "if any donor or donee makes default in furnishing any return. . ."

He referred to the various stages of the transaction and the evidence of Mr. Kelly as to the diagram produced in evidence. This set out an order of events. It was not the subject of cross examination. He submitted there was a fully adequate consideration at each stage. He referred to the effect of the option and its effect thus -

"But, once identified as meaning the option which I have granted to Bane Finance to buy at the price I have stipulated for, namely, 20 per cent, there can only be one meaning the parties attributed to those words, namely, that you, Datival, promise me, Wholesale, that if Bane exercises the option, you will transfer the car to Bane upon the terms of the option; or, put another way, you will at my direction transfer to Bane and you will receive 20 per cent, be it the Bane consideration for the transfer or be it a refund by me also of the price I got from you."

Taking the word "promise" as a reference to Datival's acceptance of the obligation to be bound by the option to Bane, he referred to the stages thus -

"And, if one seeks to evaluate that, one can, by reference to what happened in either of the two alternatives which could have occurred; if Kelly Ford buys from Datival for 20 percent plus the promise and Bane Finance then, as intended, pays Kelly Ford 20 per cent - if step IV takes place and Kelly Ford buys from Datival for 20 per cent plus the subject to option promise and if Kelly Ford pays Bane Finance 80 per cent in return for Bane's promise not to exercise the option, Kelly Ford thereby gets rid of the obligation which had fallen upon it encompassed by the words, subject to option; in other words, it discharges by a payment of 80 per cent the obligation encompassed by the words, subject to option."

He submitted that the scheme intended to relieve Kelly Wholesale from the obligation of paying Sales Tax in respect of the last wholesale sale; and because Kelly Wholesale was related to Kelly Ford there was a necessity to exclude the relationship for Sales tax and gift duty purposes. Thus one of the commercial benefits to Kelly Wholesale was to relieve it from Sales tax. He submitted there was no evidence whatever to support the submission that Bane Finance was legally bound not to exercise the option; that it was inconsistent with the entire scheme and that, in effect, the evidence at the hearing indicated that the parties set store by the option. The arrangement between the parties, he submitted, contemplated a "contemporaneous completion". Bane he said, was legally entitled to exercise the option; though morally certain not to do so. One could expect nothing else to happen so long as Kelly Ford continued to be willing to pay to Bane the sum equivalent to 80% and Datival sold the vehicle to Kelly Ford for 20%.

He referred to stage 5 and that part of it was a release by Bane of the option given it by Kelly Wholesale. There was no disposition of property thereby in favour of Kelly Wholesale; Bane did not purport to release any chose in action in favour of Kelly Wholesale; what it said, in terms, was that the option was declined; He submitted that in respect of the release of the option Kelly Wholesale was the beneficiary but received no interest in property nor any rights. He referred to the argument on behalf of the Commissioner that Kelly Ford had paid Bane yet received nothing; he submitted that Kelly Ford, in fact, received a document that was intended to bind Bane Finance in favour of Kelly Ford not to exercise the option; thus Kelly Ford could then deal with the vehicle freely - free of its own "subject to option condition". He submitted this was a "fully adequate 80%." He referred to s.18(1)(a) of the Act and the words "no allowance shall be made in respect of any contingency" i.e. for the purpose of computing the value of a gift. He submitted that the only way one could say the option is a contingency or would give rise to one, was if it created some property interest in the transferred vehicle; but if the option should be regarded as merely part of the consideration, there was no basis upon which the section could be applied.

He referred to s.14(1)(f) of the Act. He submitted that authorities unanimously treat a fiscal advantage obtained for the purpose of gain as a commercial advantage of benefit. (144-145). He referred to The Commissioner of Taxation of The Commonwealth of Australia v. Westraders Proprietary Limited (1979) 144 C.L.R. 55 per Mason J. at pp.70-71. It emerged, he said, from this that his Honour was saying, in effect, that a commercial advantage encompassed an expected taxation benefit. I note that at page 80, Aickin J. agreed with the reasons of Mason J. He submitted, that Sales tax was in practice recorded in profit and loss accounts as an operating expense, its recoupment goes into the proceeds of sale and a saving on it was no different than a saving in respect of any other business outgoing. Finally, he submitted, there was nothing in s.14(1)(f) which indicated that its breadth should be read down. He referred also to Investment and Merchant Finance Corporation Limited v. The Commissioner of Taxation of the Commonwealth of Australia (1971) 125 C.L.R. 249. He referred to what appeared in Viscount Simond's speech in Griffiths (Inspector of Taxes) v. J.P. Harrison (Watford) Ltd. (1963) A.C. 1 at p.12: Bulmer v. Inland Revenue Commissioners (1967) 1 Ch. 145 at p.166: Inland Revenue Commissioners v. Brebner (1967) 2 A.C. 18 at p.30: Inland Revenue Commissioners v. Plummer (1979) 1 Ch.1 63. He submitted that what Buckley L.J. had said in the last cited case was accepted by Lord Wilberforce in the House of Lords ((1960) A.C. at pp.901-911 in the appeal in that case. He submitted the words "commercial benefit" were unqualified. In summary he submitted that Kelly Ford's purpose in entering into the transaction was to gain a commercial profit out of the sale of motor vehicles in consequence of having had a sales tax of fiscal advantage; saving the business outgoing of Sales tax was no different from saving any other business outgoing. Bane's point of view was different being to gain a commercial profit quantified by reference to the tax saving or fiscal advantage obtained by Kelly Ford and paid to it; thus it was not a fiscal advantage to Bane to achieve a commercial advantage or profit. Datival made $1 per transaction free of administration costs, paid by Bane. Kelly Wholesale was relieved of the liability to pay Sales tax and of having to fund the payment of Sales tax ultimately sold by Kelly Ford. He referred to the evidence as to the way in which Bane and Datival made their profits. Evidence quoted showed that Bane provided the management facilities for Datival and charged no fee for that service. He submitted that the expression "fully adequate" (see definition of "Gift") did not imply a requirement to enquire into value in money terms of a promise creating a legal right or legal obligation; it was sufficient if it appeared to be bona fide and the party obtained that for which it bargained. Applying that principle to the third stage there was a sufficient equivalent to 80% of the value of the vehicle he submitted by the fact there was no element of bounty in the transactions and by the fact that Datival on-sold the vehicle for what it had paid for it plus a dollar. If Datival, he said, had not at that stage been subject to the burden of the option, maybe it would not have been willing to sell at anything less than the market value.

In reply, Senior Counsel for the Commissioner referred again to the relevant document recording the declining of the options; he submitted that upon a perusal of the document it was a declining to Kelly Wholesale which had been the grantor of the option; this was confirmed when one considered to whom was it appropriate that such words should be addressed. Having regard to the intention of the parties, he submitted, it was necessary for the decision to be communicated to the grantor. He submitted that the declining of the option and the communicating of that decision to Kelly Wholesale produced a benefit to support a gift which was a disposition of property; there was a gift involved in declining option in advance of the termination date. Independent of whether there was a gift or not he submitted that it should be inferred that the option was declined prior to or contemporaneously with Kelly Wholesale "selling" to Datival.

I have not attempted to set out in full the arguments offered by counsel on each side.

It is convenient to refer first to the submission as to onus of proof, i.e. the Commissioner contends that once an assessment is issued the onus of disproving it lies upon the applicants. Senior counsel relied upon Trautwein for this submission. However, there is a significant difference between the wording of s.23 of the Act. Section 36 of the Income Tax Assessment Act 1922-1934 includes -

". . . and the person assessed shall be liable to income tax thereon excepting so far as he establishes on objection that the assessment is excessive. . . "

Section 23 did not have words equivalent to these.

Of section 39 of the same Act it was said by Latham C.J. that a construction placed upon that section interpreted in Moreau's case imposed too heavy a burden upon the taxpayer; in that case Isaacs J. had said that s.39 -

"throws the burden on the appellant to establish a right to the benefit he claims."

But it is clear, I suggest, that s.36 and s.39 could support the argument that there was an onus on the person assessed. Those sections have no equivalent in the Act. In my opinion s.23 assumes there is a donor and one liable to gift duty. It is concerned only to place an onus on a taxpayer donor to show, if he seeks to do so, that an assessment is excessive; but it does not impose on a person assessed the obligation of proving that there was no gift. In argument this matter was treated as a "all or nothing situation" wherein no question of quantum arose because no gift, so it was argued, had been shown to exist. The argument in my view for the Commissioner on this aspect of the case fails. The onus remained on the Commissioner to prove there had been gifts at the stages of the transaction which he selected.

There was considerable argument concerning the individual stages in an endeavour to pinpoint where there was to be discerned inadequacy of consideration. However much advantage there is in such a dissection to assist elucidation, one should look at the scheme as a whole - see e.g. per Lord Wilberforce in Inland Revenue Commissioners v. Plummer (1980) A.C. 896 at p.907; and at pp.324 and 325 in Inland Revenue Commissioners v. W.P. Ramsay (1982) A.C. 300 (Ramsay). What was said by Buckley L.J. in Inland Revenue Commissioners v. Plummer (1979) 1 Ch. 63 at 79 is consistent with the speeches in Ramsay. That decision of the English Court of Appeal was upheld in the House of Lords.

I am satisfied that the order of steps in the transaction as found by the learned trial Judge was correct; it is consistent with the intention of the parties as discerned from their words and the documentation. It follows that I accept His Honour was correct in finding the declining of the option was at the end of the transaction, and not as contended by counsel for the Commissioner.

It is clear from the evidence that the scheme was devised with the knowledge and approval of each of its stages by all four parties; in fact, two of the participants had no other function than to take part in it.

It is possible to consider the transaction first by reference to the various stages of its implementation.

Sale by Kelly Wholesale to Datival

This was said to be at undervalue - 20%; thus there was inadequate consideration and to that extent a gift. But Datival did not receive simply a vehicle whose market value was 100%. The consideration it paid took account of the existence of an option subject to which the vehicle was sold. Looking at the matter prospectively, it was not possible on the evidence to estimate or measure the burden of the option as it affected Datival. The value of the vehicle was not simply market value. So the consideration was not shown to be inadequate. If the option had been exercised, presumably the 20% option exercise price would have been payable direct to Datival, or in some way via Kelly Wholesale. In either situation Datival would have received what it paid for the vehicle or what it could look forward to receiving if the option was exercised. Thus it would not have been at a loss; nor did it receive a gift.

Sale of Datival to Kelly Ford

This was again subject to option. The price was again 20% of market value. It is said this was a gift to Kelly Ford because of the inadequacy of consideration. However, the vehicle was still subject to option. The consideration had to take account of this circumstance; thus the value of the transaction to Kelly Ford was not market value of the vehicle but something less than 100%. No evidence enables the possibility to be valued; so no inadequacy has been demonstrated. For the option to have been validly exercised, the sum of 20% of the value would have been payable to Kelly Ford. It would thus have received back a sum equal to what it paid; and so to that extent, not been out of pocket.

Kelly Ford to Bane Finance

Kelly Ford paid 80% of value to Bane which agreed not to exercise the option. This was said to involve a gift by Kelly Ford to Bane because Kelly Ford got no benefit from the transaction. So far as this submission relied on the option no longer then being in existence because Bane had already declined, I have already indicated that I do not accept the submission. The transaction itself evidenced the parties' prior agreement and understanding that the option was still on foot and held by Bane. By procuring Bane's agreement not to exercise the option, Kelly Ford was advantaged by being able to sell the vehicle to a customer free of any outstanding option. If Kelly Ford did sell to a customer and the option was exercised, Kelly Ford then being unable to comply with it by selling to Bane, would have been liable in damages to Bane. The value of that option to the option holder, Bane, was not the subject of evidence. Being, therefore, not quantified it is impossible to say what would have been the likely award of damages to Bane and thus what was the worth in money terms to Kelly Ford. So it is not possible to say inadequacy was demonstrated; or that Kelly Ford made a gift to Bane.

Bane to Kelly Wholesale

It was said that with no consideration moving from Kelly Wholesale, Bane, in giving up the right it had acquired against Kelly Wholesale had made a gift to Kelly Wholesale. It is at least doubtful that there was a disposition of property within the meaning of para.(a) of s.4(1) of the Act by Bane. However, the submission ignores, I suggest, that Kelly Wholesale's original sale to Datival was made in anticipation and on the understanding that Bane promised, assuming the early steps 3 and 4 had been taken, it would relinquish the option on receipt of the payment by Kelly Ford of 80%. After it had sold "subject to option" any liability Kelly Wholesale accepted in respect of the option could have been recovered by requiring Datival to comply with the option; or indemnify Kelly Wholesale for any loss it incurred at the hands of Bane.

Summary

Finally, it is necessary to look at the end result of the whole operation as, I suggest, the authorities require. I omit the Datival dollar and division of Sales tax savings.

Kelly Wholesale sold a vehicle for 80% + 20% of its value.

Datival bought for 20% and sold for 20%.

Kelly Ford bought a vehicle for 20% and perfected or safeguarded its title for a further 80%.

Bane Ford paid 80% and received 80%.

All of this was achieved by the consideration for any one party's action being the promise by the other three which, in the events, were all carried out. These transactions seem to be within the description by Lord Wilberforce in Ramsay at p.326 -

" "The capital gains tax was created to operate in the real world, not that of make-belief. As I said in Aberdeen Constructions Group Ltd. v. Inland Revenue Commissioners (1978) A..C. 885, it is a tax on gains (or I might have added gains less losses), it is not a tax on arithmetical differences. To say that a loss (or gain) which appears to arise at one stage in an indivisible process, and which is intended to be and is cancelled out by a later stage, so that at the end of what was brought as, and planned as, a single continuous operation, there is not such a loss (or gain) as the legislation is dealing with, is in my opinion well and indeed essentially within the judicial function."

I accept that on analysis there is no inadequacy of consideration in any of the stages at which there is said to have been a gift; though authority to which we have been referred indicates that it would not be correct to look separately at the fragments of the transaction without recognizing them as part of the whole.

Furthermore, if disposition, including "settlement" implies a bounty, it is clear that none of the four parties retained any "bounty" from the completion of the transaction.

From a consideration of the authorities which are referred to above, I incline to the view that "any commercial benefit" as mentioned in s.14(1)(a) may include as part of a commercial transaction obtaining a tax advantage; perhaps this is easier to accept where the tax advantage is other than one solely aimed at the avoidance of sales tax. Thus, to recapture an argument by senior Counsel for the Commissioner s.14(1)(f) did not intend that a gift made for the purpose of the commercial benefit of avoiding sales tax is not subject to duty. However, since, in my opinion, there were no gifts, it is unnecessary to reach any conclusion on this matter.

I would dismiss these appeals with costs.

JUDGE3

These are appeals brought by the Commissioner of Taxation from the allowance by the Supreme Court of New South Wales (Hunt J.) of appeals brought to the Supreme Court by the respondents pursuant to s. 34 of the Gift Duty Assessment Act 1941 ("the Act"). The respondents, pursuant to s. 31 of the Act, had objected to assessments of gift duty made by the Commissioner. The objections had been disallowed and the appeals to the Supreme Court were against that disallowance.

The Act applies only in respect of gifts made before 1 July 1979; see sub-sec. 4(1) of the Gift Duty Act 1941 as amended by the Gift Duty Amendment Act 1978; and s. 11 of the Act as amended by the Gift Duty Assessment Amendment Act 1978. The transactions said to be gifts within the meaning of the Act in the present case all occurred prior to 1 July 1979.

The transactions which are in question are complex. They were steps in a scheme for the sale of new Ford motor vehicles devised in order to reduce the incidence of sales tax payable by a Ford distributing agency. The participants in the scheme were the respondents. Two, Kelly Ford Pty. Limited and Kelly Wholesale Pty. Limited, were companies engaged in the carrying on of the distributorship and are related to each other by way of common directors and shareholders. The remaining two, Bane Finance Pty. Limited and Datival Merchandising Pty. Limited, were also related to each other, but there was no relationship between the Kelly companies and the Bane and Datival companies. Since the transactions in question, Kelly Ford Pty. Limited has changed its name to Leguna Investments Pty. Limited and Kelly Wholesale to Willagee Investments Pty. Limited. However, it is more convenient to refer to them by the names Kelly Ford and Kelly Wholesale.

The Bane and Datival companies had no business other than that of carrying out the scheme. Datival received no more than was sufficient to meet administrative expenses. Bane made profits out of participating in the scheme. No doubt these went to benefit whoever it was who had devised it.

The scheme is no longer one which could have the effect of reducing the incidence of sales tax. The sales tax legislation has been amended to overcome any effect such a scheme might have.

His Honour summarised the scheme as follows (the numbering is added):

"1. Each motor vehicle was purchased from the Ford Sales Company of Australia Limited by Kelly Wholesale. (Both counsel agreed that this should have been a reference to the Ford Motor Company).

2. Kelly Wholesale then granted to Bane Finance an option to purchase the vehicle. The price paid by Bane Finance for the grant of the option was 80% of the wholesale market value. The exercise price was 20% of that value.

3. Kelly Wholesale next sold the vehicle (but subject to the option) to Datival for the same amount as the exercise price of the option (that is, 20% of the wholesale market value). Datival possessed a sales tax certificate which enabled it to purchase the vehicle without any obligation to pay sales tax.

4. Datival then sold the vehicle (again subject to the option) to Kelly Ford for the price it paid plus $1, together with the sales tax which became payable at that stage, it being the last wholesale transaction. Such sales tax is payable upon the "sale value" of the goods which, in the ordinary case, is "the price for which the goods are sold." Provided that there is no relevant relationship by way of shareholding or control between the vendor and the purchaser, the fact that the goods are sold for an amount less than their fair and reasonable wholesale value is irrelevant to the amount of sales tax payable. In these cases, the sales tax was therefore assessed upon approximately 20% of the true wholesale market value, a considerable saving for Kelly Ford.

5. Finally, to enable it to sell the vehicle to the retail customer clear of the option granted by Kelly Wholesale to Bane Finance, Kelly Ford obtained from Bane Finance its agreement that it would not exercise that option (referred to, perhaps misleadingly, as a relinquishment of the option). The amount paid to obtain that agreement was the price which Bane Finance had paid to Kelly Wholesale for the original grant of the option less $1, together with 25% of the savings in the amount of sales tax payable by Datival and reimbursed by Kelly Ford."

The last sentence of what his Honour has said in paragraph 5 requires some amplification and correction. No sales tax was payable by Datival; it held a sales tax certificate. The sales tax was payable by Kelly Ford which was the purchaser in the last wholesale transaction. By reason of the operation of the scheme the amount of sales tax Kelly Ford would have paid was approximately 80 per cent less than would have been the case if it had acquired the vehicles direct from Kelly Wholesale. The reasons for that are not important for the resolution of these cases but are to do with the fact that the two Kelly companies are related. In such circumstances the Commissioner would investigate the question of whether the consideration paid by Kelly Ford was adequate.

The reason why the amount paid by Kelly Ford to Bane Finance included 25 per cent of the savings in the amount of sales tax was that those responsible for devising and implementing the scheme were entitled to receive 25 per cent of the sales tax saved, that is 25 per cent of the 80 per cent which would, but for the scheme, have been paid by Kelly Ford.

During the argument counsel provided us with a useful diagram showing the various steps or transactions which went to make up the scheme. A copy of the diagram is appended to the judgment of McGregor J.

The Commissioner claims gift duty in respect of the transaction between Kelly Wholesale and Datival (para. 3 and step 3 as shown in the diagram); on the transaction between Datival and Kelly Ford (para. 4 and step 4 of the diagram); and twice in respect of the transaction between Bane Finance and Kelly Ford (para. 5 and step 5 of the diagram).

Before stating precisely how the Commissioner's case is put in relation to each of these transactions, it is necessary to refer to certain of the provisions of the Act and to some of the detail of the evidence. Section 11 of the Act provides that, subject to the Act, gift duty at rates declared by the Parliament shall be levied and paid in respect of every gift made on or after the date of the commencement of the Act and before 1 July 1979. "Gift" is defined in sub-sec. 4(1) of the Act. The relevant meaning for the purposes of these cases is, "any disposition of property which is made otherwise than by will . . . . without consideration in money or money's worth passing from the disponee to the disponor, or with such consideration so passing if the consideration is not . . . fully adequate."

The expression "disposition of property" is defined in sub-sec. 4(1) to mean any conveyance, transfer, assignment, settlement, delivery, payment or other alienation of property. Without limiting the generality of the expressions so used, it includes:

". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c) the grant or creation of any lease, mortgage, charge, servitude, licence, power, partnership or interest in property;

(d) the release, discharge, surrender, forfeiture or abandonment, at law or in equity, of any debt, contract or chose in action, or of any interest in property;

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(f) any transaction entered into by any person with intent thereby to diminish, directly or indirectly, the value of his own property and to increase the value of the property of any other person;"

"Property" is defined to include real and personal property and every interest in real or personal property.

Para. 14(1)(f), so far as it is relevant, is as follows:

"14.(1) Notwithstanding anything contained in this Act, gift duty shall not be payable in respect of -

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(f) any gift which is made in the course of carrying on a business, for the purpose of obtaining any commercial benefit . . . . . . . . . . . . . . . . . . . . . . . .by

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(ii) an incorporated company the shares or stock of which are not or is not quoted in the official list of any Stock Exchange, if the Commissioner is satisfied that the donee is not a director of the company or is not connected by ties of blood or marriage with any director of the company"

Para. 18(1)(a) is as follows:

"18.(1) For the purpose of computing the value of a gift -

(a) no allowance shall be made in respect of any contingency affecting the interests of the donees or any of them;"

Section 23 is in the following terms:

"23. If any donor or donee makes default in furnishing any return, document or information, or the Commissioner is not satisfied with any return, document or information furnished, he may cause an assessment to be made of the amount on which, in his judgment, gift duty ought to be levied, and the donor and the donee shall be liable to pay gift duty thereon, except so far as the amount is, on appeal, shown to be excessive."

I have earlier referred to the provisions of ss. 31 and 34 which are in Part VI providing for objections and appeals.

In the case which they presented the respondents made no secret of the fact that the transactions which have been made the subject of assessment by the Commissioner were entered into for the purpose of reducing the incidence of sales tax. Mr. Kelly is a director of the two Kelly companies. He gave evidence of a meeting which took place on 10 July 1978 at which were present a Mr. Butler, who was the Kelly companies' auditor, a Mr. Stanfield, who was their manager, a Mr. Joyce, who was a director of the Bane and Datival companies and Mr. Kelly himself. In paragraph 12 of an affidavit Mr. Kelly said that at that meeting Mr. Joyce said:

"A course of dealing can be established by the Companies to each of their benefits and by which the sales tax presently payable by Willagee Investments Pty. Limited might be reduced. The steps which would be involved are:

Leguna Investments Pty. Limited (Kelly Ford) would notify Willagee Investments Pty. Limited (Kelly Wholesale) of the details of the Ford motor vehicles which Leguna Investments Pty. Limited required for retail sale; Willagee Investments Pty. Limited would order from Ford Motor Company of Australia Limited the requisite motor vehicles to meet the orders of Leguna Investments Pty. Limited; Willagee Investments Pty. Limited would grant to Bane Finance Pty. Limited an option to purchase each of these motor vehicles; Leguna Investments Pty. Limited would then pay to Bane Finance Pty. Limited amounts to relinquish its rights under each option provided that Bane Finance Pty. Limited would ensure that each relevant motor vehicle would be sold by Willagee Investments Pty. Limited to Datival Merchandising Pty. Limited which in turn would sell to Leguna Investments Pty. Limited.

Is this acceptable to you?"

Mr. Kelly said that he had told Mr. Joyce that what he suggested was acceptable. In a second affidavit Mr. Kelly referred to his first affidavit and gave further evidence of what transpired at the meeting. He said:

"10. During this meeting I said to Mr. Joyce: "What is to stop your company (meaning Bane Finance Pty. Limited) from exercising its option after Kelly Ford has bought the car?" Mr. Joyce replied: "That can't happen because it is a condition of Kelly Ford's purchase that the option will be relinquished by my company (meaning Bane Finance Pty. Limited)."

I then said: "What is to stop your other company (meaning Datival Merchandising Pty. Limited) from refusing to sell the car to Kelly Ford and then selling it to someone else?" Mr. Joyce replied: "Nothing except for the fact that the car would still be subject to the option and the arrangement is that Kelly Ford will only pay for the option to be relinquished if the car is sold by my company to it."

11. After Mr. Joyce had described the arrangement proposed as stated by me in paragraph 12 of my said affidavit Mr. Butler then drew a diagram depicting each of the four companies to be involved in the arrangement. In the drawing of that diagram Mr. Butler explained to me the arrangement as follows:-

"Kelly Wholesale is the owner of the Ford car. An independant Company A would then purchase an option to buy at an agreed amount. Company B would then purchase the car subject to the terms of the option. Kelly Ford would then be in a position where effectively at this stage it was unable to purchase cars from Kelly Wholesale. Kelly Ford would then be forced to purchase the car subject to the option from Company B and come to some financial arrangement with Company A to enable it to sell the car for retail."

During the course of this explanation Mr. Butler pointed to the diagram at the stage immediately the option had been granted to one of Mr. Joyce's companies and the sale to his other company and said:

"Do you realise that at this stage one of the independant companies owns the car and another owns an option over the car." I replied, "Yes I do."

Mr. Butler then replied: "You will have to rely upon Mr. Joyce's honesty and our agreement that the arrangement will be carried out in the proper manner." I replied: "I understand that."

Mr. Butler then said: "The transactions will all happen on the same day anyway and it will be impractical for someone to take off with the money as all parties will be making use of the same Bank and will be depositing their cheques at the same time."

I then said to Mr. Butler and to Mr. Joyce, "That appears to be acceptable. I am prepared to go ahead subject to satisfactory QC's advice."

Mr. Butler mentioned to me, "We already have a QC's advice."

I replied, "I would rather have an advice by a QC given just for us. Can you (meaning Mr. Butler) get one for me?"

Mr. Butler replied, "I will organise that."

Thereafter the scheme was implemented. The detail of how it was implemented is recounted in the evidence of Mr. Stanfield. He said that the course of business was that an invoice was received from the Ford Motor Company in respect of each vehicle ordered by Kelly Wholesale. The invoice was addressed both to Kelly Wholesale and Kelly Ford. He referred to finance which was made available by a finance company, Esanda Wholesale Pty. Limited, but it is unnecessary to refer to the detail of that evidence. The vehicle would then be delivered and paid for by Kelly Wholesale. Sometimes the vehicle would already be in the possession of that company. Thereafter the steps which together constituted the scheme were put into effect. What was involved in them is shown in detail in one of the exhibits. This shows that at 4.30 p.m. each afternoon the stock numbers of vehicles to be registered the following day were obtained from a delivery book. The sales tax which would normally be payable was calculated. The sale price of the vehicle from Kelly Wholesale to Datival was calculated at 20 per cent of the Ford invoice price. The option price was calculated at the total cost of the vehicle less the sale price to Kelly Wholesale. The purchase price paid by Kelly Ford was the price paid by Datival to Kelly Wholesale plus one dollar. Kelly Ford would pay Bane the price it received for the option less 25 per cent of the sales tax which would have been payable had the transaction been a direct one between the two Kelly companies. Kelly Ford drew two cheques payable, apparently, to Kelly Wholesale for the two components, that is, the price and the consideration for the relinquishing of the option.

The option documents were in a standard form, an example of which is as follows:

'TO BANE FINANCE PTY. LTD. OPTION NO. 003

IN CONSIDERATION of the sum of $6,361.45 paid to the undersigned by you (the receipt whereof is hereby acknowledged) the undersigned grants to you or your nominee an option to purchase the below described goods for the sum of:

$1,710.77 which included sales tax in the sum of $368.77 upon the following terms and conditions:

1. This option may be exercised by you or your nominee by notice in writing handed to the undersigned at or before noon on 17 AUG. 1978

2. The undersigned warrants itself to be the true owner of the said goods and has not entered into any agreement which if put into effect. would prevent the sale of the said goods taking place and the undersigned agrees that during the period of this option, it will not enter into any such agreement without your written consent and will not do any act that would prejudice your rights under this option.

3. SPECIAL CONDITIONS

DESCRIPTION OF GOODS

Ford Fairmont GXL Sedan Engine JG 32UJ 36338

DATED this 17 day of July 1978

SIGNED for and on behalf of) ) Brian R. Kelly ) N.R. Stanfield

Witness KELLY WHOLESALE PTY. LTD.'

Appended to each option was an agreement intended to be signed on behalf of the Bane company. The form of that appended to the option above set out immediately before the transaction was completed was as follows:

KELLY WHOLESALE PTY. LTD.

OPTION NO. 003

17.7.1978

'We hereby acknowledge the grant of the option to purchase the goods identified in the abovementioned option. The option is hereby declined*

*delete one. Bane Finance Pty. Ltd.

R. Joyce< '

It is to be observed that the word 'exercised' has been struck out and the document signed on behalf of Bane Finance by Mr. Joyce. That occurred before the transaction was completed. Some additional words. 'Provided you sell the goods for $1,341' were apparently added to the document some time after completion of the transaction.

The evidence is that the transactions were all completed within a very short space of time after 4.30 p.m. each afternoon. The procedure is described in Mr. Stanfield's affidavit. For the purpose of dealing with the submissions which were made it is enough to say that all the documents were prepared so that settlement could take place, if not instantaneously, then within a very few minutes. The options were signed and the word 'exercised' was invariably struck out at the time settlement occurred. It is to be observed that the option was to be exercisable at or before noon on 17 August 1978, that is, one month after its date. But it was declined on the date it bears, 17 July 1978. The evidence establishes that this practice was an invariable one. There is nothing in the evidence to suggest that there was ever any departure from it. Counsel for the respondent conceded this to be the case.

Subject to the question of whether the relinquishment of the options had legal effect because of the apparent absence of consideration passing from Bane Finance for declining to exercise them, the options in each case had an existence which was no more than transient. Little attention was given to this question in argument. It seems to me, however, that there was in fact consideration for their relinquishment. That is because of the interdependence of the various transactions agreed upon by the parties. That is a matter of which I shall say more.

I have earlier mentioned the proviso to the agreement concerning the exercise of the options. His Honour found that the words of the proviso were not typed on the agreement at the time they were exercised. He was plainly justified in making this finding. But he also found that they nevertheless accorded with the Bane company's understanding of the arrangement. Again, this was a finding which was amply justified. It was not challenged before us.

I have referred to sufficient of the evidence to enable the submissions of the parties to be understood and the resolution of the questions between them to be embarked upon.

There is first to be dealt with a submission made on behalf of the Commissioner that, by reason of the provisions of s. 23 of the Act, the onus was upon the respondents to show that the assessments were wrong. The words of the section relied upon are the words, 'except so far as the amount is, on appeal, shown to be excessive.' I would accept that those words are, in some circumstances, apt to cast an onus upon a person against whom as assessment has been made. But I do not think that in the circumstances of this case the respondents carry any such onus as is relied upon by the Commissioner.

In my opinion the provision relied upon operates only in cases where there is unquestionably a gift within the meaning of the Act. If that be the case, and the parties to the gift dispute the amount of gift duty which has been assessed, it will be for them or one of them to show that the amount is excessive. But in these cases the respondents dispute that there is any gift at all. To be more specific their objections to the assessments are based on there having been no transaction without adequate consideration. That being so it is, in my opinion, for the Commissioner to show that there has.

In the course of the argument reference was made to Trautwein v. Federal Commissioner of Taxation (1936) 56 C.L.R. 63 at p. 89. That case was concerned with the provisions of s. 36 of the Income Tax Assessment Act 1922. The section is not in the same terms as s. 23 of the Act here. The case, in my opinion, is clearly distinguishable. It does not bear on the proper construction of s. 23.

The significance which the Commissioner's submission as to the onus of proof would have had, had it been upheld, is that it would have enabled him to challenge more strongly a number of the findings made by his Honour as to the sequence in which the various steps which went to make up the scheme were carried out. Notwithstanding that the submission might not be accepted, counsel for the Commissioner nevertheless sought to challenge his Honour's findings as to sequence. He did so principally because of discrepencies in the dates borne by a number of the documents and for other reasons as well. In my opinion his submission in this respect should be rejected. It must be remembered that the steps were all intended to culminate in a settlement upon which the titles to the vehicles would pass to Kelly Ford and cheques would be paid over by it in discharge of its obligations. Bearing in mind the intended interdependence of each step on each of the others, the purpose which each step had in the overall implementation of the scheme and what occurred when the transactions were settled, I am of opinion that his Honour was correct in concluding that the steps occurred in the order in which he stated them (pp. 3 - 4 above) and in which they appear in the diagram; cf. Inland Revenue Commissioners v. Plummer (1979) 1 Ch. 63 per Buckley L.J. at pp. 76 - 77.

I go then to the submissions of the parties in relation to each of the transactions said to constitute a gift. Not unnaturally these were centred upon the options and the significance they had in relation to the various transactions. In the submission of counsel for the Commissioner gift duty is payable in respect of the transaction referred to as step 3 in the diagram (see also para. 3 on p. 3) because Datival received an unencumbered title to each vehicle but paid only 20 per cent of the wholesale market price for it. The consideration was therefore inadequate. There had been a gift within the meaning of the Act as to 80 per cent of the wholesale market price. Assessments were made accordingly.

The submission was put in a number of ways. One way was based upon it having been established that the options were declined (step 5) before the sale of the vehicles by Kelly Wholesale to Datival (step 3). If that were so, it would clearly be correct to say that Datival had received the vehicles free from any effect the options might have had for 20 per cent of their value. But for reasons earlier given I am not prepared to conclude that the options were declined before the sales to Datival took place. Step 3 did occur, however momentarily, before step 5.

Although that is the case, the question nevertheless arises as to whether Datival did not take the vehicles free of the options. It seems unlikely, to say the least, that a contract for the sale of a new Ford motor car, or for the grant of an option to purchase such a car, could be made the subject of an action for specific performance. If that be so, as I think it is, it seems difficult to conclude that any interest in property was conferred upon the Bane company by the grant of the options. Its rights of action, if there were any breaches of the option agreements, would be personal ones against one or more of the parties to the scheme.

But assuming that the consequence of that conclusion is that, notwithstanding the grant of the options, the entirety of Kelly Wholesle's right, title and interest in the vehicles passed to Datival, I do not think that the Commissioner's ultimate submission is advanced. That submission is that the vehicles were sold to Datival for a consideration which was inadequate. One must remember that each transaction (including the sale by Kelly Wholesale to Datival) was part of an integrated scheme to which each of the four companies was a party. Datival took title with express notice of the options. It did so in circumstances which obliged it to observe their terms. It thus became bound, in my opinion, by an obligation to transfer title in the vehicles to Bane if it should exercise the options or to pay damages to Bane if it failed to do so. In those circumstances it might be expected not to be prepared to pay any more than (or even as much as) 20 per cent of the wholesale market price. It is true that there is no evidence of value to support that conclusion, but it seems to me to be a fair inference to draw from the whole of the evidence. In any event the onus is upon the Commissioner to satisfy the Court that there is an inadequacy of consideration. In my opinion he has not discharged that onus unless it be that further considerations need to be taken into account.

In the submission of the Commissioner there are. To this end he relied upon two further approaches with which I shall deal together. These were alternatively put. They accepted that the transactions occurred in the order stated in the diagram. The first alternative was that it should be inferred from the evidence that the Bane company was bound by a contractual obligation always to decline to exercise the options. In consequence the existence of the options should be disregarded with the result that there was a clear inadequacy of consideration for the sale of the vehicles to Datival. The second approach was that, although there was no legal obligation binding Bane not to exercise the options, it was so practically or morally certain that it would not that the position was that Datival could safely ignore the existence of the options when it purchased the vehicles.

Having reflected on the whole of the evidence, particularly that set out in Mr. Kelly's second affidavit earlier quoted, I have reached the conclusion that the Bane company was bound by a contractual obligation to decline to exercise each of the options. In saying what I have I bear in mind what was said at the meeting both by Mr. Butler and Mr. Joyce about the need for the Kelly companies to trust Mr. Joyce. But it seems to me that if there had been an attempt by the Bane company at any time to exercise the options it would in all the circumstances have been in breach of contractual obligations owed by it to one or both of the Kelly companies. The only way to test the position is to assume that for some reason the Bane and Datival companies, or those behind them, wished to take advantage of the situation in order to commit a fraud upon the Kelly companies. It seems to me to be unthinkable that the Kelly companies would, in those circumstances, have no redress.

If I be wrong in that view, I would unhesitatingly conclude that it was certain as could be that the Bane company would always decline to exercise the options. If it had not done so the scheme would not have worked. Through Mr. Joyce it was its clearly expressed intention never to exercise them and Mr. Kelly was asked by Mr. Joyce to take him on trust in this regard. It follows that each time a vehicle was sold by Kelly Wholesale to Datival, both companies would know without a shadow of a doubt that the options granted in respect of each vehicle would never be exercised by Bane.

There is a further reason why the existence of the options should be left out of account. It is provided by para. 18(1)(a) of the Act. It provides that for the purpose of computing the value of a gift, no allowance shall be made in respect of any contingency affecting the interests of the donees or any of them. This was not a matter relied upon before the primary Judge, but counsel for the Commissioner was given leave to rely on it before us.

In counsel's submission the chance that Bane might exercise the options was a contingency within the meaning of the paragraph and ought therefore to be ignored. The meaning of para. 18(1)(a) was the subject of consideration by the High Court in Commissioner of Taxation v. St. Helens Farm (A.C.T.) Pty. Limited (1981) 146 C.L.R. 336. The Court was there concerned with a number of Gorton schemes entered into for the purpose of avoiding death and estate duties; see Gorton v. Federal Commissioner of Taxation (1965) 113 C.L.R. 604. The Commissioner had assessed for gift duty transactions entered into for the purpose of implementing the schemes. One feature of four of the five schemes under consideration was that in various ways they provided in articles of association of a company for the settlor to reconvert preference shares into which ordinary shares had been converted back to ordinary shares. It was partly because of this right retained by the settlor during his lifetime that it was said that the allotment of other ordinary shares to those whom the settlor wished to benefit was not for an inadequate consideration.

By majority the High Court held that the right to reconvert the preference shares to ordinary shares was a contingency within the paragraph and ought to be ignored in valuing the shares allotted to the ordinary shareholders. In summary the majority thought that the chance that the settlor might reconvert the shares was a contingency which affected the enjoyment and hence the value of the interests of the donees in what was given. Thus the paragraph operated to exclude that matter being taken into account. I refer generally to the judgment of Stephen J. (pp. 365-7) with whom, on this point, Murphy J. agreed (p. 388) and to the judgment of Mason J. (pp. 385-6) in whose judgment Wilson J. agreed (p. 445).

In my opinion the present case is covered by the St. Helens Farm case. There the contingency which the majority of the High Court thought was within para. 18(1)(a) of the Act was the chance that the settlor might exercise his right to reconvert the preference shares to ordinary shares. Here, what is involved is the chance that Bane Finance might exercise its options to acquire the vehicles. In St. Helens the gift was from the company to allottees of shares other than the settlor. Here it is said to be from a company (Kelly Wholesale) to another company (Datival) in circumstances where a third party (Bane Finance) might exercise options over the vehicles thus affecting the subject matter and value of what is claimed to be the property the subject of the gifts. Like the contingency in St. Helens, the chance that the options might be exercised affected the enjoyment, and thus the value of what was said to be given. Para. 18(1)(a) therefore obliges one to leave out of account in arriving at the value of the property which passed to Datival the contingency or chance that the options might be exercised by Bane.

So, for a number of reasons, the options and the chance that they might have been exercised by Bane ought to be left out of account. But there remains a question as to how far this conclusion takes the Commissioner. The exercise which is being engaged in is the determination of whether the consideration passing from Datival to Kelly Wholesale for the sale to Datival of the vehicles was adequate or, more accurately, whether the Commissioner has shown it to be inadequate. The fact that the existence and possible exercise of the options is a circumstance to be left out of account in the valuation process is a very relevant circumstance, but does it warrant the conclusion that the consideration passing from Datival to Kelly Wholesale was inadequate by 80 per cent in relation to each of the vehicles?

In my opinion it does not. Just as it was relevant to look at the interdependence of each transaction upon each other transaction for the purpose of concluding that Bane would never exercise the options, so it is relevant to look at this interdependence for other purposes. The parties to the scheme never intended Datival to have title to the vehicles for more than a few moments. Its obligation was to on-sell them immediately it took title to Kelly Ford. If it had refused to do so and kept the vehicles for itself or transferred them to Bane, it would have been in clear breach of a contract with one or both of the Kelly companies. Why in those circumstances should one conclude that the consideration passing from it to Kelly Wholesale would need to be, in order to be adequate, the full market value of the vehicles? It may have been a difficult exercise for a valuer to determine what adequate consideration in all the circumstances would be, but in the way the evidence has been left it would be wrong, in my opinion, to uphold the assessment which is calculated on the basis of the difference between the wholesale price of the vehicles and the 20 per cent thereof paid by Datival to Kelly Ford.

The position may have been different if there had been no consideration or nominal consideration for the transactions. Then there would probably have been a gift in the true sense. What the value of the property passing under the gift would have been would still have been a matter for valuation. But probably some duty would have been payable. I express no concluded view.

I am therefore of opinion that the Commissioner has not shown that the transactions between Kelly Wholesale and Datival were for an inadequate consideration. The Commissioner's appeal in relation to these transactions should be dismissed.

The next transactions to be considered are those between Datival and Kelly Ford (step 4 of the diagram). The Commissioner's case was based upon similar considerations to those upon which he relied in relation to the Kelly Wholesale - Datival transactions. That was because the sales by Datival to Kelly Ford were again subject to the options.

For reasons similar to those which applied in relation to the Kelly Wholesale - Datival transactions I consider the existence of the options and the chance that Bane might exercise them should be left out of account. But that conclusion does not warrant the further conclusion that the consideration passing from Kelly Ford to Datival (20 per cent of the wholesale market price plus one dollar plus sales tax) was inadequate either at all or by 80 per cent of the wholesale market price less one dollar.

Again one has to take into account the interdependence of the transactions or steps going to make up the scheme. Kelly Ford was obliged to pay out Bane Finance. It was bound by a contract to pay Bane 80 per cent of the wholesale price less one dollar together with 25 per cent of the sales tax which the scheme saved it. Why in those circumstances should it be prepared to pay Datival the full wholesale market price of the vehicles? As in the other case the Commissioner has failed to demonstrate that the consideration was inadequate or, if it was, by how much it was inadequate.

For these reasons I am of the opinion that the appeal concerning the Datival - Kelly Ford transactions also fails.

That leaves the assessments made in respect of step 5. It was firstly said that the transactions encompassed by step 5 involved a gift by Kelly Ford to Bane because Kelly Ford received no benefit from Bane for the money which it paid. This time it is not an inadequacy of consideration which is alleged; in the Commissioner's submission there was no consideration at all.

This submission seemed to me to be bound up with the Commissioner's initial submission that the onus of proof was upon the respondents and that they had not established that the sequence of the transactions was as they contended. If Bane had declined to exercise the options prior to the sales from Kelly Wholesale to Datival one could understand that Kelly Ford was receiving no benefit for its payment to Bane. The options had already been given up. Once, however, it is concluded, as I have decided it should be, that the sequence of the transactions was that contended for by the respondents, it is difficult to see any basis upon which the submission can succeed. Kelly Ford did pay Bane for declining to exercise the options and the proportion of sales tax saved which it had promised to pay. There was consideration for the transactions. No gift was involved.

The second way in which it was said that step 5 involved a gift was again because of the Commissioner's view of the order of the transactions. There was said to be a gift from Bane Finance to Kelly Wholesale. It was said that it received the benefit of Bane's relinquishment of the options but paid nothing for it. No consideration passed from Kelly Wholesale for the transactions. In my opinion the Commissioner cannot succeed because the transactions did occur in the order contended for by the respondents. It was thus Kelly Ford, and not Kelly Wholesale, which received the benefit of the relinquishment of the options once it paid what was due to Bane Finance.

It follows that I am of opinion that each of the four appeals should be dismissed. But before concluding there are two matters that should be mentioned. Firstly, my conclusion makes it unnecessary to deal with a submission made on behalf of the respondents based on para. 14(1)(f) of the Act. In the respondents' submission, if all else failed, the transactions, if otherwise liable for gift duty, were exempt because of the operation of this paragraph. Each was a gift made in the course of carrying on a business and for the purpose of obtaining a commercial benefit. The respondents relied upon Investment & Merchant Finance Corporation Limited v. Federal Commissioner of Taxation (1971) 125 C.L.R. 249. Federal Commissioner of Taxation v. Patcorp Investments Limited (1976) 140 C.L.R. 247 and Federal Commissioner of Taxation v. Westraders Pty. Limited (1980) 144 C.L.R. 55. In the circumstances it is unnecessary to express a view on the respondents' submission and I do not.

The second matter which I wish to mention is this. The transactions in question were entered into for the purpose of implementing a scheme for the avoidance of sales tax. For that reason the Commissioner, in seeking to bring the transactions to gift duty, was unable to rely upon the principle which has been established in the United Kingdom that the fiscal consequences of a preordained series of transactions, intended to operate as such, are generally to be ascertained by considering the result of the series as a whole and not by dissecting the scheme and considering each individual transaction separately; see the decisions of the House of Lords in W.T. Ramsay Limited v. Inland Revenue Commissioners (1982) A.C. 300, Inland Revenue Commissioners v. Burmah Oil Company Limited (1982) 54 T.C. 200 and Furniss v. Dawson (the Times, 14th February 1984). The two earlier cases have received some consideration in Australia. I refer to Federal Commissioner of Taxation v. Ilberv (1981) 38 A.L.R. 172 at pp. 173-5 and Federal Commissioner of Taxation v. Werchon (1982) 42 A.L.R. 425 at pp. 445 and 447-8. It is not relevant to express any view on what would have been the outcome had the Commissioner assessed Kelly Ford for the sales tax which it would have been liable to pay if there had been no scheme. Accordingly, I express no view on that question.

I should add that it was not in the Commissioner's interest to submit that the transactions were shams. Because he had chosen to assess them for gift duty, he needed to accept the validity of each of the transactions which together constituted the scheme.

In the result I would dismiss each of the appeals with costs.